Opinion
C.A. No. 07C-11-242 PLA.
Submitted: July 2, 2009.
Decided: October 23, 2009.
UPON PLAINTIFF'S DAUBERT MOTION.
UPON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT.
DENIED.UPON DEFENDANT'S DAUBERT MOTION.
UPON PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT.
GRANTED in part; DENIED in part.Steven J. Margolin, Esquire, and Andrew D. Cordo, Esquire, ASHBY GEDDES, Wilmington, Delaware, Attorneys for Plaintiff.
Somers S. Price, Jr., Esquire, and James M. Kron, Esquire, POTTER ANDERSON CORROON LLP, Wilmington, Delaware, Attorney for Defendant.
I. Introduction
This is the Court's decision on Daubert motions filed by Defendant Carestream Health, Inc. ("Carestream") and Plaintiff M G Polymers USA, LLC ("M G"). Carestream claims that the analysis of M G's economic damages expert impermissibly relies upon data provided by M G, fails to account for future contingencies, and suggests that M G could recover contract formation costs and price discounts. M G also seeks exclusion of Carestream's expert, but on the bases that he is unqualified to opine on the areas for which his testimony is proffered, that his opinions lack a supporting analytical framework, and that his testimony would invade the province of the jury to decide the ultimate issues in this case.
See Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993).
For reasons set forth more fully hereafter, the Court concludes that the testimony of both experts is reliable and satisfies all criteria for admissibility under Delaware Rule of Evidence 702. The Court agrees with Carestream, however, that M G's expert offers opinions regarding damages that are not recoverable under any applicable legal theory. Although exclusion of M G's expert is not merited, M G will not be permitted to present testimony regarding these non-recoverable items. Accordingly, M G's Daubert Motion will be DENIED, and Carestream's Daubert Motion will be DENIED in part and GRANTED in part.
II. Factual Background
This breach of contract claim involves a requirements supply agreement for polyethylene terephthalate (PET) resin pellets. Eastman Kodak Company ("Eastman Kodak"), predecessor in interest to defendant Carestream, entered into a written requirements contract to purchase PET resin pellets from M G for use in its Windsor, Colorado facility ("the Windsor facility"). The contract ("the Supply Agreement") was effective for four years, beginning January 1, 2007. By a separate agreement, M G also contracted to supply PET resin for Eastman Kodak's manufacturing plant in Rochester, New York. Eastman Kodak assigned the Supply Agreement to Carestream on May 1, 2007.
Under the Supply Agreement, Carestream was required to purchase, and M G to supply, PET resin pellets meeting certain specifications. Carestream was obligated to purchase "an amount of Product for its plant located in Windsor, Colorado . . . equal to at least the greater of 100% of the . . . total demand" for the Windsor facility, up to a certain volume of demand per year, or "90% of the [Windsor facility's] total demand for PET pellets."
Supply Agreement, App. A.
Id, App. B.
The Supply Agreement included a pricing formula and prohibited either party from taking "unilateral action regarding price." Carestream, however, was permitted to purchase PET resin from other suppliers. Furthermore, under a meet-competition provision contained in § 13.2, Carestream could present a competitive offer to M G and seek a price adjustment if it became possible to purchase "products of comparable quality, (including the Specifications), in volumes equal to or greater than those specified in [the] Agreement." By its terms, the meet-competition provision could not be invoked until January 1, 2008.
Id. § 5.2.
Id. § 3.3.
Id. § 13.2.
Id.
The relationship between the parties apparently broke down almost as soon as it began. Both parties agree that M G's PET resin had to be "qualified for use" before Carestream's 2007 purchase obligation was triggered. The parties dispute, however, what qualification of the PET resin entailed and whether it was ever achieved. Carestream asserts that a planned trial of the M G product from May 29 through May 30, 2007, was prematurely stopped because M G's resin did not run properly on its 501 machine, the primary piece of equipment used to process PET at the Windsor facility.
Id., App. B ("Kodak Colorado's 2007 Maximum Annual Volume commitment will be pro-rated to the number of full and partial months of the year that Supplier PET pellets are qualified for use at the site and the site is capable of processing greater than 80% of their PET demand in the form of PET pellets.").
Carestream manufactures medical imaging film from PET resin through an extrusion process. The Windsor facility's 501 machine has two plasticators, which are large units containing thirty-six-foot stainless-steel screws that rotate continuously. PET resin is fed into the 501 machine, where it comes in contact with the screw. Each screw operates at high temperatures and pressures, and their rotation forces the PET resin forward along the barrel, melting and stretching the resin as it moves so that it can be extruded into long sheets of material that are further processed to produce film.
Despite the numerous motions filed by both parties in this case, neither side has provided even a cursory explanation of how the 501 machine operates. Therefore, the Court's understanding is drawn primarily from apparently undisputed portions of defense expert Charles Mikulka's report. The Court also resorted to the Internet for general background on plastics extrusion processes. The parties would be well-advised to be clearer in their presentation of technical information at trial. Jurors will not be permitted to conduct outside research for basic explanatory information, and moreover, should not be placed in the position of feeling such measures necessary.
Carestream alleges that processing M G's PET pellets on the 501 machine at Windsor created a condition called plasticator instability, which caused unacceptable variations in the output flow of melted PET where it exited the screw. This plasticator instability, Carestream claims, resulted in a defective final product that was off-color and did not meet thickness specifications.
Carestream claims that it conducted a further trial in June, and again experienced plasticator instability. In June 2007, Carestream notified M G of concerns regarding the PET pellets. M G sent a team of their personnel and an outside consultant to the Windsor facility in late July of 2007 to participate in a joint effort to resolve the plasticator instability. The parties planned to induce the instability deliberately in order to identify its source and solution.
M G claims that after this joint trial ran to completion, Carestream personnel reported that M G's PET pellets could be used successfully on its machinery. Carestream, however, contends that the two-day joint test never revealed the root cause of the plasticator instability, and that M G was aware that additional extended trials would be required before its resin pellets could be considered "qualified for use" at the Windsor facility. Approximately one week after the joint trial run, Carestream notified M G that it would not purchase PET pellets from M G in 2007, and would instead use a different PET material purchased from Eastman Chemical Company. M G alleges that Carestream raised false quality complaints regarding its PET pellets as a bad-faith attempt either to force M G into a price concession or to avoid the Supply Agreement and pursue a less expensive contract with another supplier. M G claims that the Supply Agreement provided for qualification of its PET resin pellets at the Kodak Park facility in New York, and that no particular qualification process at the Windsor facility was a necessary prerequisite to Carestream's purchase obligation.
M G informed Carestream on August 13, 2007, that it considered Carestream to be in breach of the Supply Agreement. On November 30, 2007, M G filed suit, alleging that Carestream committed breach of contract by refusing to perform under the Supply Agreement, wrongfully terminating the Supply Agreement, and violating several duties under New York's Uniform Commercial Code. In June 2009, the Court denied cross-motions for summary judgment. Now before the Court are Daubert motions filed by both parties.
Docket 1 (Compl.). The Court dismissed an additional count alleging fraud in the inducement on July 30, 2008. Pursuant to a choice-of-law provision in the Supply Agreement, New York law governs the substantive merits of M G's claim.
See Docket 36.
III. Parties' Contentions Carestream's Daubert Motion
Carestream's motion requests that the Court exclude the expert testimony of Robert F. Reilly, who is proffered by M G as its economic expert. Carestream cites three alleged defects in Reilly's expert report that it claims require exclusion.
First, Carestream argues that Reilly's report relies almost exclusively upon facts reported, and in some cases summarized, by M G management. According to Carestream, Reilly's failure to independently verify or analyze data provided to him by his client requires exclusion of any opinions derived from this information.
Second, Carestream claims that Reilly's report is impermissibly speculative because Reilly projects damages based upon unfounded assumptions that the Supply Agreement would be renewed for an additional term, that Carestream's PET requirements would remain at maximum levels despite real-world declines in its PET needs, and that Carestream would not invoke the Supply Agreement's meet-competition provision. Furthermore, Carestream contends that Reilly's future price estimates are uncertain because he does not explain the method by which he derived the present value discount rates used to account for the uncertainties of future markets and did not survey the existing PET market to ascertain applicable discounts.
Carestream also argues that Reilly's report "estimates lost profits with no regard for the [Supply] Agreement's liability limitation." Docket 40, at 3. Because the Court has held that the liability limitation clause will not apply to M G's claim, this ground will not be addressed. See Docket 36, at 18.
Finally, Carestream argues that exclusion is necessary because Reilly's report posits that M G could recover development costs that are not recoverable in a breach of contract claim. In his damages analysis, Reilly opines that M G can recover the costs of developing the custom resin it provided Carestream, legal costs associated with negotiating the Supply Agreement, and contract price discounts provided to Carestream. If Reilly's analysis is accepted, Carestream argues, M G would recover both reliance and expectancy damages, providing it with an unwarranted windfall. In addition, Carestream notes that attorneys' fees related to contract formation are only recoverable under New York law where provided for by agreement, statute, or court rule, and that discounts or price reductions used as incentives to entering into a contract are not recoverable unless the parties explicitly so provide.
In response to Carestream's motion, M G argues that Reilly's report is a reliable product of sound methodology. According to M G, Reilly drew upon his own experience and expertise, and independently reviewed data from M G, in arriving at his opinions. To the extent Reilly relied upon information requested from M G, he stated that such information is customarily and reasonably relied upon by experts in conducting damages analyses, in accordance with standards promulgated by the American Institute of Certified Public Accountants (AICPA).
M G also argues that Reilly's report makes acceptable assumptions in calculating projected damages and that exclusion of an expert's testimony is not appropriate where the expert makes factual assumptions that are subject to dispute between the parties. Rather, when the calculation of damages requires assumptions based upon facts or contingencies that are in dispute between the parties, the amount of reasonable damages becomes a question for the jury. Therefore, M G suggests that Carestream's "proper recourse for challenging Reilly's assumptions and methodology is cross-examination, not Daubert exclusion."
Docket 46, at 3.
Finally, M G argues that Carestream wrongly focuses on a "sliver" of potentially excludible damages in arguing that Reilly's entire analysis must be kept from the jury. M G challenges Carestream's assertions that it cannot recover attorneys' fees or the supposed "contract price discounts," which it argues were actually a subsidy provided to defray the costs of installing PET pellet grinders at Carestream's Windsor facilities.
M G's Daubert Motion
M G urges the Court to exclude the testimony of Charles Mikulka ("Mikulka"), one of Carestream's proffered experts. In its motion, M G alleges that Mikluka's testimony is offered to address two issues: (1) PET industry customs and practices, and (2) economic damages. M G questions Mikulka's qualifications to opine on either of these topics. M G further critiques Mikulka's opinions as being devoid of any supporting analytical framework. Finally, M G contends that Mikulka's opinions consist primarily of inadmissible legal conclusions regarding the ultimate issues in this case, including whether M G's resin was "qualified for use" at the Windsor facility within the meaning of the Supply Agreement, whether Carestream invoked the meet-competition clause, and whether M G was legally entitled to recover certain of its claimed losses.
In response, Carestream contends M G's motion is predicated on a "heads-I-win-tails-you-lose" premise that suggests Mikulka's opinion is proffered for purposes beyond the scope of his expertise to enable M G to attack his qualifications. Carestream asserts that Mikulka's testimony will reflect his expertise in chemical industry customs and practices, particularly the accreditation of performance or specialty chemicals. Thus, Carestream argues that Mikulka is qualified to offer expert opinions regarding the qualification of the PET resin M G created for Carestream's manufacturing process.
Carestream also challenges M G's position that it should be required to offer an expert on the PET industry, which is subsumed by the broader performance chemicals industry. Moreover, Carestream argues that to the extent an expert on the specifics of the PET industry is required, Mikulka possesses sufficient experience with the markets for PET and its precursors to opine as a "PET expert."
Regarding the substance of Mikulka's opinions, Carestream states that they are well-supported and properly based upon the facts, industry customs and standards with which Mikulka is familiar, and his experience in the performance chemicals field. Carestream rejects M G's proposition that it must demonstrate that Mikulka's opinions are underpinned by an analytical framework or scientific methodology. Rather, Carestream asserts that Mikulka's opinions constitute non-scientific expert testimony and are therefore not subject to the typical Daubert factors used to evaluate scientific testimony.
As to Mikulka's opinions regarding M G's economic damages, Carestream argues that Mikulka has extensive experience in damages analyses and should be qualified as an expert in the area. Specifically, Carestream notes that Mikulka offered expert testimony regarding damages in thirteen of the litigation support engagements listed in his C.V., and his opinions have never been subject to judicial exclusion.
IV. Analysis Admissibility of Expert Testimony
Delaware Rule of Evidence ("DRE") 702 controls the admissibility of expert testimony. DRE 702 states as follows:
If scientific, technical or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training or education may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case.
In interpreting and applying DRE 702, Delaware courts have explicitly adopted Daubert v. Merrell Dow Pharmaceuticals, Inc. and Kumho Tire Co. Ltd. v. Carmichael, two decisions establishing a framework for determining the admissibility of expert opinions under Federal Rule of Evidence 702. Under Daubert and Kumho, the trial judge serves a gatekeeping function, ensuring that expert testimony is both relevant and reliable. The proponent of the expert testimony bears the burden of establishing its relevance, reliability, and admissibility by a preponderance of the evidence.
509 U.S. 579 (1993).
526 U.S. 137 (1999).
Minner v. Am. Mortgage Guar. Co., 791 A.2d 826, 843 (Del. Ch. 2000).
Id.
The trial court's gatekeeping obligation applies "to all expert testimony on `scientific,' `technical,' or `other specialized matters'" within the purview of DRE 702. Prior to Daubert, Delaware courts identified several factors drawn from the Delaware Rules of Evidence that are to be considered in deciding the admissibility of scientific or technical expert testimony:
M.G. Bancorporation, Inc., 737 A.2d at 521 (citing Kumho, 526 U.S. at 147-48).
(1) Whether the expert witness is qualified (DRE 702);
(2) Whether the evidence is otherwise admissible, relevant, and reliable (DRE 401 and 402);
(3) Whether the bases of the expert's opinion are reasonably relied upon by experts in the field (DRE 703);
(4) Whether the specialized knowledge being offered would assist the trier of fact to understand the evidence or determine a fact in issue (DRE 702); and
(5) Whether introducing the evidence will create unfair prejudice, confuse the issues, or mislead the jury (DRE 403).
Nelson v. State, 628 A.2d 69, 74 (Del. 1993).
These factors continue to guide the Court's admissibility analysis under DRE 702. In addition, the Daubert inquiry focuses on whether the expert's testimony will assist the trier of fact and whether the testimony constitutes scientific knowledge. Daubert set forth five non-exclusive factors that may guide the trial court's determination as to when an expert's theory or technique constitutes "scientific knowledge": (1) whether it can be, and has been, tested; (2) whether it has been subject to peer review and publication; (3) whether it carries a known or potential rate of error; (4) whether its application is controlled by particular standards; and (5) whether it is generally accepted within a relevant scientific community.
See, e.g., Sturgis v. Bayside Health Ass'n Chartered, 942 A.2d 579, 584 (Del. 2007).
509 A.2d at 592.
Id. at 593-94.
The trial court is afforded wide latitude in determining if the factors offer a reasonable gauge for the reliability of testimony in a particular case. The factors will be applied flexibly where a proffered witness's area of expertise is not expected to carry the traditional indicia of scientific acceptance; however, "reliability remains a prerequisite to admissibility of all expert opinions," whether they are based upon scientific, technical, or other specialized knowledge.
M.G. Bancorporation, Inc., 737 A.2d at 522.
Mayew v. Chrysler, LLC, 2008 WL 447707, at *4 (Del. Super. Oct. 1, 2008).
M G Expert Robert Reilly
Although Reilly's testimony must be limited to exclude certain legally impermissible items of recovery, the Court agrees with M G's position that this case is one in which differing assessments of the plaintiff's damages arise from factual disputes that are appropriate for determination by the jury. No challenge is made to Reilly's qualifications, and the Court finds that his methodology, including his use of data supplied by M G, is reliable.Reilly's use of data provided by M G management upon his request is not grounds for exclusion in the context of the lost profits economic damages analysis involved in this case. At his deposition, Reilly stated that his report was prepared in compliance with applicable industry standards set forth by AICPA. Reilly further explained that AICPA standards require economic damages analysts to "ask for and test and examine the underlying documents [and] underlying data [provided by a company in response to the analyst's request] to the extent that [the analyst believes] it reasonable on a sampling basis," but not to perform an audit, which is only possible in analyses of historical financial statements. Consistent with these standards, Reilly requested sales invoices from M G that met with defined search parameters for mitigation sales, verified that M G management was providing appropriate invoices that satisfied his criteria, and then requested an aggregate summary of invoices that met the criteria for 2007 and 2008. Reilly continued to confer in writing and by telephone with M G management to ensure that they understood his data requests and had fulfilled them with relevant information. As Reilly received documents from M G, he reviewed them for responsiveness to his data requests. When M G reported that it could find no mitigating sales from August 2008 onward, Reilly independently confirmed this assertion by viewing monthly production reports that showed M G's manufacturing facility was operating below capacity in an amount that exceeded the monthly projected sales volume to Carestream for 2008 under the Supply Agreement.
Docket 47, Ex. 2, at 118:12-13.
Docket 47, Ex. 2, at 119:18-120:4.
Docket 47, Ex. 2, at 24:16-29:6.
Docket 47, Ex. 2, at 44:9-18.
Docket 47, Ex. 2, at 76:9-14.
Docket 47, Ex. 2, at 28:13-22.
Carestream has not provided contrary evidence that a party's self-reported profit or expense data is not reasonably relied upon by experts in performing economic damages analyses for lost profits; indeed, as M G notes, Carestream expert Charles Mikulka indicated that it would have been acceptable for Reilly to "rely on aggregate data provided by M G" if the data underlying the calculations was verified and the underlying factual assumptions were reasonable. Reilly's deposition suggests that he engaged in sufficient verification of the underlying data provided by M G to meet the applicable standards for experts in the field.
Docket 47, Ex. 3, at 134:5-14.
The practice of permitting economics experts to incorporate sales and expense data reported by their clients in lost profits analyses appears logical. M G's own records were likely the best source of information regarding M G's profits and expenses. Moreover, Reilly did not merely regurgitate the data provided to him by M G, but rather utilized his specialized knowledge and expertise to craft his data requests, to verify that the information provided by M G was responsive to those requests, and to conduct a damage analysis consistent with the model detailed in his report. Reilly's report is thus distinguishable from the expert opinions challenged in Arista Records, LLC v. Usenet.com, Inc. and Sommerfield v. City of Chicago, two cases raised by Carestream. In Arista Records, exclusion of a portion of an expert's declaration was appropriate where the proffered expert reiterated a party's disputed factual assertions as to the capacity and capabilities of its computer servers and software without independently verifying the party's information or applying any sort of expertise or specialized knowledge to assessing it. In Sommerfield, a federal district court held that an expert report failed to satisfy Daubert where the expert relied upon an attorney's summary of deposition testimony regarding a police department's training and instructional procedures. The expert in Sommerfield did not attempt to ascertain the accuracy of the information contained in the deposition summaries, nor was there any evidence that such information was of a type reasonably relied upon by experts in the field. Neither Arista Records nor Sommerfield involved an expert analysis in which it was professionally reasonable to rely in part upon facts provided by the party retaining the expert, as is the case under AICPA standards for evaluating a lost profits claim.
608 F. Supp. 2d 409 (S.D.N.Y. 2009).
F.R.D. 317 (N.D. Ill. 2008).
254 F.R.D. at 321-22.
Carestream's reliance upon Chemipal Ltd. v. Slim-Fast Nutritional Foods International, Inc. is also misplaced. Chemipal involved a lost profits claim arising from a distribution agreement under which plaintiff Chemipal was to distribute defendant Slim-Fast's diet products in Israel. Chemipal brought suit against Slim-Fast for breach of the distribution agreement and presented an expert report regarding its lost profits claim. In calculating lost profits, Chemipal's expert relied upon an advertising plan prepared in anticipation of the distribution agreement that set a goal of a ten-percent Israeli market share for Slim-Fast's products. Chemipal's expert assumed that this ten-percent goal would be met, despite the fact that it was an aspirational figure and might not have been achieved. Chemipal's expert also failed to verify information provided to him by Chemipal, and did not apply any expertise in gathering or analyzing data obtained from Chemipal or secondary sources used in the advertising plan. Indeed, the expert in Chemipal admitted in his deposition that "[h]e did not know what he was basing his testimony on." Accordingly, the Chemipal court concluded that his opinion was inherently unreliable and could not satisfy Daubert.
350 F. Supp. 2d 582 (D. Del. 2004).
Id. at 585.
Id. at 589.
Id.
Id. at 590.
Id.
Although more on point than the other cases cited by Carestream in that it involves a lost profits claim, Chemipal represents an egregious example of an "inexpert expert" conducting a clearly unreliable analysis. It does not stand for the proposition that an expert may never reasonably use data reported by a party in conducting an economic damages analysis. Here, in contrast to Chemipal, Reilly's report and deposition reveal that he understands the sources of information upon which his opinion relies, having formulated the data requests at issue. Reilly's damages model does not blindly adopt a marketing plan, but rather uses M G's actual sales and expense history, market data, information set forth in the Supply Agreement's sales volume table and pricing formula, and present-value discount rates to calculate M G's lost profits. Although Carestream may challenge the factual assumptions upon which Reilly bases his opinions, Reilly's use of data reported by M G in response to his inquiries is an accepted and understandable practice in his field, and does not render his opinions unreliable.
See Expert Report of Robert F. Reilly, at 16-19.
See Inline Connection Corp. v. AOL Time Warner, Inc., 470 F. Supp. 2d 435, 443 (D. Del. 2007) (holding that expert report was admissible under Daubert where AICPA guidelines permitted experts to rely upon facts and assumptions provided by the experts' client).
The concerns Carestream raises regarding Reilly's reliance on factual assumptions about the future of the Supply Agreement and the PET market are valid areas for challenge via cross-examination and rebuttal, but do not provide a basis to exclude Reilly's opinions. In the event a breach is found, the extent of reasonable damages is a question for the jury. To the extent M G's damages claim is premised upon disputed factual assumptions, it is the province of the jury to resolve those disputes and determine the appropriate recovery. Carestream may cross-examine Reilly and present rebuttal regarding Reilly's assumptions that M G's profits would not have been affected by a reduction in Carestream's PET requirements below maximal values set in the Supply Agreement, invocation of the meet-competition provision, or declines in PET market prices.
Carestream's claim that Reilly "provides no explanation of how the discount rates were determined or applied for each year in question or the reliability of this process" is belied by Reilly's expert report, which sets forth how he calculated present value discount rates for both the Supply Agreement term and the projected renewal term, and identifies the industry sources upon which his calculations relied. As discussed above, Reilly asserts that the analysis contained in his report is consistent with industry standards, and Carestream has not identified any reason why the approach Reilly used should be considered unreliable. The Court is aware that multiple methods exist for calculating present value discount rates, and Carestream may properly question Reilly's choice of methodology and its potential disadvantages vis-À-vis these other approaches. The mere existence of alternative means of deriving a present discount value rate, however, does not imply that Reilly's method is unreliable.
Expert Report of Robert F. Reilly, Ex. IX.
The Court further concludes that Reilly may testify as to the portion of his damages analysis that presumes a single-term renewal of the Supply Agreement from 2011 to 2013. Even in the absence of a renewal provision within the Supply Agreement, M G has presented a sufficient basis for Reilly's assumption, such that the projected lost profits from a renewal could be proven "with reasonable certainty" and are more than merely speculative. Although the parties did not have a lengthy relationship with each other upon entering into the Supply Agreement, both were well-established businesses with measurable profit histories. As Reilly explained in his deposition, both M G and Carestream have a history of renewing their PET resin contracts: M G's multi-year customer contracts were "typically renewed for at least one period," if not longer, and Carestream had maintained a continuous relationship with its previous PET supplier for approximately twenty years. In addition, the fact that M G provided a $600,000 price concession, apparently to defray the $1.6 million cost of installing grinders at the Windsor facility to process M G's pellet-form PET resin, offers further factual support for M G's position that the Supply Agreement was perceived by both parties as the start of a longer-term relationship and that M G therefore reasonably expected a renewal of at least one term upon provision of conforming goods. This is not to say that renewal was a foregone conclusion, but rather that M G has offered a sufficient basis for Reilly's factual assumption that the jury may be presented with Reilly's lost profit projections assuming the alternatives of non-renewal or single-term renewal. As trier of fact, the jury can then determine "how long the relationship would have lasted" and what weight to assign Reilly's projections.
E.g., O'Neill v. Warburg, Pincus Co., 833 N.Y.S.2d 461, 463 (App. Div. 2007).
Docket 47, Ex. 2, at 86:5-19.
Cf. Supervalu, Inc. v. Assoc. Grocers, Inc., 2007 WL 624342, at *3 (D. Minn. Jan. 3, 2007) (holding that damages expert's testimony incorporating assumptions that contract between parties with an established business history would be renewed was not unduly speculative, as contrasted with "unaccepted bids on a new business").
Id.
Turning to Carestream's final claim, the Court agrees that Reilly's report would award M G certain unrecoverable damages. The mistaken legal and factual assumptions underlying these points in Reilly's analysis do not merit precluding Reilly from testifying; however, his testimony will need to be limited.
New York's version of the Uniform Commercial Code permits an aggrieved seller of goods who would not be adequately compensated for a buyer's breach by market price damages to recover "the profit (including reasonable overhead) which the seller would have made from full performance by the buyer." The intent of lost profits damages under U.C.C. § 2-708 is "to put the seller in as good a position as performance [by the buyer] would have done."
N.Y. U.C.C. § 2-708.
Id.
Reilly's damages calculation assumes that M G would be legally entitled to recover certain costs associated with the negotiation and formation of the Supply Agreement, including the costs of developing the PET resin, legal costs of contract formation, and employee expenses associated with researching, developing, and negotiating the contract. These expenses, however, would all have been incurred in the course of obtaining the profits M G now seeks to recover; indeed, some of these expense items would have arisen regardless of whether any contract was formed between the parties and are simply the proverbial "costs of doing business." Accordingly, M G will not be permitted to present testimony that its contract negotiation and formation costs, or the expenses associated with developing resin for the Windsor facility, are recoverable items.
See RICHARD A. LORD, WILLISTON ON CONTRACTS § 64:1 (4th ed. 2009) ("This rule [of compensation] governing the recovery of so-called direct or general damages necessarily requires the court to take into account not only the defendant's promised performance but the plaintiff's as well. Indeed, a failure to do so will frustrate the compensation principle by overcompensating the plaintiff, for he or she would otherwise receive what the defendant promised without the cost of performing his or her return promise.").
Similarly, Reilly's testimony must be limited to avoid suggesting that any of the contract price discounts he identifies as items of damage in his report are recoverable. Whether viewed as price discounts or subsidies to incentivize the installation of grinders at the Windsor facilities, these amounts would not have been recovered by M G in the event that Carestream had fully performed under the contract. Therefore, M G cannot recover them as damages in addition to the lost profits it seeks.
Carestream Expert Charles Mikulka
Upon review of the record, the Court is satisfied that Mikulka is qualified to opine as an expert regarding the two areas for which Carestream seeks to proffer his testimony: the customs and practices of the chemicals industry — including the PET market — as to qualification or accreditation of performance chemicals, and the evaluation of M G's damages claim. Mikulka's opinions, as expressed in his report, reliably apply his specialized knowledge to the facts of this case. Accordingly, M G's motion to preclude Mikulka's testimony will be denied.
Mikulka's qualifications arise from thirty-five years of experience in the chemicals and related industries. He worked as a chemical engineer during the 1970s, but he has spent most of his career as a consultant. He holds both a B.S. and an M.S. in Chemical Engineering, as well as an M.B.A. in Management and International Business. Of relevance to this case, Mikulka has experience providing litigation support, as well as technical and economic analysis for the chemical products industry. In his litigation support engagements, Mikulka has provided assessments of damages claims in more than a dozen cases. His C.V. notes engagements involving a variety of specialty and performance chemicals, although PET is not specifically listed as one of his highlighted business areas. He has been involved in at least two engagements involving PET contracts during his career.
See Expert Report of Charles Mikulka, App. A.
Docket 38, Ex. 2, at 47:15-17.
Having reviewed Mikulka's credentials, the Court considers him amply qualified to opine regarding industry customs and practices related to accreditation and processing of performance chemicals, and to provide expert testimony regarding M G's damages claim. M G has not produced evidence suggesting that the PET market is distinguishable from the broader chemicals market as a whole such that Mikulka's experiences in the performance chemicals industry are irrelevant to PET contracts. Moreover, Mikulka does possess some experience, albeit limited, with PET contracts. Mikulka's business degree and experience providing damages assessments qualify him to offer his opinion regarding whether Reilly's use of rounding in his damages analysis conforms to standard practices in the industry.
By his own deposition testimony, Mikulka acknowledges that the calculation of present value discount rates is outside his area of expertise, and thus he cannot opine regarding this portion of Reilly's analysis. Docket 38, Ex. 2, at 182:11-183:2.
The Court's role in assessing expert witness qualifications does not entail ensuring that only the "best qualified" expert witnesses are presented, nor guaranteeing that proffered experts possess the most narrow possible area of expertise. Rather, alleged "weaknesses" of specialization of the sort raised by M G in this case may be addressed through cross-examination, providing the opposing party an opportunity to contest the weight to be afforded the expert's testimony. The Court's exposure to the technical aspects of this case leave it with no doubt that the jury would be greatly assisted by testimony from an expert witness familiar with industry customs and practices regarding accreditation of performance chemicals and with damages assessments. Mikulka possesses specialized knowledge of both topics that far exceed that of the lay person, which suffices to qualify him.
Holbrook v. Lykes Bros. S.S. Co., Inc., 80 F.3d 777, 782 (3d Cir. 1996); Starnes v. Sears Roebuck Co., 2005 WL 34346371, at *3 (W.D. Tenn. Dec. 14, 2005).
Starnes, 2005 WL 34346372, at *3.
In addition to finding Mikulka qualified as an expert, the Court is satisfied that his opinions are reliable, as they are based upon the standards and customs of the chemical products industry. Although Mikulka's expertise is in a scientific field, it is important to note that his opinion is non-scientific: he offers specialized knowledge of a particular market and its practices. It makes little sense to expect Mikulka's opinions regarding how performance chemicals are accredited to bear the traditional indicia of scientific acceptance gauged by a straightforward application of the Daubert factors. As Carestream argues, the Court's task in evaluating challenged non-scientific expert opinion under Daubert and Kumho is to "determine whether the testimony has `a reliable basis in the knowledge and experience of [the relevant] discipline.'"
Kumho, 526 U.S. at 149 (quoting Daubert, 509 U.S. at 592).
Here, Mikulka's experience in and knowledge of the chemicals product industry provides a reliable basis for his opinions. The length and breadth of Mikulka's experience in the chemicals product industry, including his extensive work as a consultant both within the industry and in litigation engagements, support the reliability of his knowledge. Mikulka's report states that his opinions are based upon application of this experience to the facts of the instant case. For example, a portion of Mikulka's report uses a brief case study of PET accreditation trials undertaken by Eastman Kodak at the Windsor facility using another manufacturer's PET resin as a point of comparison for the later M G product trials. Throughout the analysis section of his report, Mikulka identifies those portions of the M G resin trial runs that he considers to be notably consistent or inconsistent with industry customs and practices to support his final opinion that M G's product was never accredited on the Windsor facility machinery in a manner consistent with industry practice. Mikulka does not, and could not, wedge his specialized knowledge into a scientific methodology. A review of his report and deposition excerpts shows that his opinions have a reliable basis in his knowledge and experience, and his report explains how that knowledge and experience informed his opinions regarding this case.
Expert Report of Charles Mikulka, at 4.
Id. at 12-13.
Contrary to M G's position, Mikulka's opinions do not constitute improper legal conclusions. Under DRE 704, "[t]estimony in the form of an opinion or inference otherwise admissible is not objectionable merely because it embraces an ultimate issue to be decided by the trier of fact." At trial, M G is free to assail Mikulka's opinions through its own witnesses and via cross-examination, leaving little risk that his testimony will confuse or mislead jurors. Mikulka's opinions regarding the conduct and outcome of the qualification process may touch upon the ultimate issues of this case, but they clearly apply the standards and customs of the industry, not legal standards, to the facts of the case. It will remain for the jury to determine what qualification process was intended by the parties under the Supply Agreement, whether that process was fulfilled, and whether Carestream acted in good faith.
M G's motion attacks several of Mikulka's statements regarding items in its damages claim that he (correctly) considered non-recoverable. The Court has resolved many of these issues in the previous section discussing limitations on Reilly's testimony.
V. Conclusion
Although the parties have agreed upon little during the course of this contentious litigation, both sides managed to fall into the trap of confusing questions of testimonial weight for the jury with questions of expert reliability that must be resolved by the Court. For the reasons set forth herein, Carestream's Daubert Motion is GRANTED in part to limit the testimony of Robert F. Reilly with regard to non-recoverable damages claims, consistent with this opinion, and DENIED in part as to the rest of Reilly's testimony. M G's Daubert Motion is DENIED.
IT IS SO ORDERED.
Before the Court are cross-motions for summary judgment filed by Defendant Carestream Health, Inc. ("Carestream") and Plaintiff M G Polymers USA, LLC ("M G") in a contract dispute involving a requirements supply agreement for terephthalate (PET) resin pellets. Carestream seeks summary judgment on the basis that it did not breach the parties' supply agreement by eliminating its requirements for PET pellets, because M G's PET products did not conform to contractual specifications. M G's Motion for Partial Summary Judgment requests a ruling that Carestream was obligated under the parties' agreement to purchase PET pellets from M G and that Carestream did not seek a price adjustment under the meet-competition clause.
For reasons set forth more fully hereafter, the Court concludes that genuine issues of material fact exist as to whether M G's PET pellets constituted conforming goods, and thus whether Carestream was under an obligation to purchase. Carestream agrees that it never invoked the supply agreement's meet-competition clause during the course of the litigated events in 2007. Accordingly, Carestream's Motion for Summary Judgment is denied, and M G's Motion for Summary Judgment is granted in part and denied in part.
II. Factual Background
Eastman Kodak Co. ("Kodak"), predecessor in interest to Carestream, entered into a written requirements contract to purchase PET resin pellets from M G for use in its Windsor, Colorado facility ("the Windsor facility"). The contract ("the Supply Agreement") was effective for four years, beginning January 1, 2007. Kodak assigned the contract to Carestream on May 1, 2007.Carestream uses PET resin in the manufacture of medical imaging film. Prior to its agreement with M G, Carestream employed PET resin in powder form in its production process. In connection with its new arrangement with M G, however, Carestream apparently planned to convert the Windsor facility to the use of PET pellets in 2007. This conversion required Carestream to install grinders to process the PET pellets. M G apparently provided a $600,000.00 price reduction to offset the expense of installing the grinders.
Under the Supply Agreement, Carestream was required to purchase, and M G to supply, PET resin pellets meeting certain specifications, defined in the contract as "Product." The Supply Agreement obligated Carestream to obtain "an amount of Product for its plant located in Windsor, Colorado . . . equal to at least the greater of 100% of the . . . total demand" for the Windsor facility, up to a certain volume of demand per year, or "90% of the [Windsor facility's] total demand for PET pellets." The Supply Agreement included a limitation of liability clause that provided, in relevant part, as follows:
Supply Agreement, App. A.
Id., App. B.
Except for each party's indemnification obligations as expressly set forth in this agreement, neither party shall be responsible or liable to the other for lost profits, or lost business opportunities or for indirect, special, punitive or consequential damages arising out of or in connection with supply of goods provided for under this agreement or for termination of this agreement as provided for herein.
Id. § 23.0.
The Supply Agreement did not prohibit Carestream from purchasing PET resin from other suppliers. Under a meet-competition provision contained in § 13.2 of the Supply Agreement, Carestream could also present a competitive offer to M G and seek a price adjustment if it became possible to purchase "products of comparable quality, (including the Specifications), in volumes equal to or greater than those specified in [the] Agreement." By its terms, the meet-competition provision could not be invoked until January 1, 2008. The Supply Agreement denied either party the ability to "take unilateral action regarding price."
Id. § 3.3.
Id. § 13.2.
Id.
Id. § 5.2.
Although both parties recount that several trials of the M G-supplied PET pellets occurred at the Windsor facility in the spring and summer of 2007, they dispute the nature and outcome of those trials. Carestream asserts that a planned trial from May 29 through May 30 ended prematurely because of apparent processing problems. Carestream's manufacturing process involves melting PET resin and feeding the melted resin through extruders that form the material into sheets. According to Carestream, when M G's PET pellets were processed on its machinery, instabilities arose in the plasticators, which caused unacceptable instability in the output flow of melted PET. This plasticator instability resulted in a defective final product. Carestream allegedly experienced plasticator instability again when it conducted another trial using M G's PET pellets in June.
In June 2007, Carestream notified M G of concerns regarding the PET pellets. M G sent a team of their personnel and an outside consultant to the Windsor facility in late July of 2007 to participate in a joint effort to resolve the plasticator instability. The parties planned to deliberately induce the instability in order to identify its source and solution. M G claims that after this joint trial ran to completion, Carestream personnel reported that M G's PET pellets could be used successfully on its machinery. According to M G, Carestream's grinders became operational on July 12, 2007, prior to the joint trial, and were capable of processing all of Carestream's PET resin requirements in pellet form as of that time. Carestream, however, contends that the two-day joint test never revealed the root cause of the plasticator instability, and that M G's own consultant indicated that additional extended trials would be required.
Docket 27 (Pl.'s Mot. for Partial Summ. J.), at 2.
Approximately one week after this trial run, Carestream notified M G that it would not purchase PET pellets from M G in 2007, and would use a different PET material instead. Carestream stated that it would use M G's PET pellets in 2008 if M G would guarantee that its PET pellets would work in Carestream's Windsor facility process and agreed to match the price of PET resin powder available from Eastman Chemical Company ("ECC"). According to Carestream, M G refused to participate in further trials, which Carestream considered necessary to qualify its PET pellets for use at the Windsor facility. Carestream asserts that M G thereby abandoned the Supply Agreement.
M G claims that although it did not learn of Carestream's plans to resume purchases of PET powder from ECC until August 2007, Carestream had been negotiating with ECC for several months prior. M G alleges that Carestream raised false quality complaints regarding its PET pellets as a bad-faith attempt to either force M G into a price concession or avoid the Supply Agreement and pursue a less expensive contract for PET powder from ECC. In support of its argument, M G points to internal Carestream communications suggesting that Carestream was searching for "any hint of trouble" with the M G-supplied PET pellets and had set a July target date so that Carestream could "exit our commitment contract from [M G]" in order to "get more favorable pricing from [ECC] sooner."
Docket 27, Ex. E.
Docket 33 (App. to Pl.'s Resp. to Def.'s Mot. for Summ. J.), Ex. S.
M G informed Carestream on August 13, 2007, that it considered Carestream to be in breach of the Supply Agreement. After failed attempts to resolve the dispute through informal negotiation and mediation, M G provided written notice to Carestream in November 2007 that it intended to pursue litigation. On November 30, 2007, M G filed suit in this Court, alleging that Carestream committed breach of contract by refusing to perform under the Supply Agreement, wrongfully terminating the Supply Agreement, and violating several duties under New York's Uniform Commercial Code.
Docket 1 (Compl.). The Court dismissed an additional count alleging fraud in the inducement on July 30, 2008.
III. Parties' Contentions
Carestream's Motion argues that it was under no legal obligation to purchase M G's PET pellets, because M G's pellets did not qualify for use on machinery at the Windsor plant and M G abandoned the testing necessary to complete qualification. Therefore, according to Carestream, it eliminated its requirements for Product in good faith for a "legitimate business reason." Carestream argues that the PET powder it subsequently purchased from ECC was not "Product" within the meaning of the Supply Agreement, because the powder did not match the contractual specifications describing the PET pellets. Finally, Carestream contends that the limitation of liability clause in the Supply Agreement precludes M G's claim for lost profits and consequential damages.In response, M G essentially suggests that Carestream fabricated claims that its PET pellets did not qualify for use on its machines as a bad-faith pretext for reducing their requirements in order to avoid the contract. M G asserts that under the purchase arrangement between it and Carestream, "qualification" of the pellets was specifically and unambiguously defined to mean qualification for use at the New York Kodak Park facility. M G argues that Carestream is attempting to have a different, self-created accreditation process implied into the Supply Agreement. Because the Supply Agreement is not ambiguous, M G argues that there is no basis to depart from the defined qualification process set forth in the Kodak Park Agreement. Moreover, if the Court nevertheless considers the Supply Agreement to be ambiguous, that ambiguity would raise a material factual dispute as to what the parties intended by the use of the term "qualified." Finally, M G emphasizes that the limitation of liability clause, by its terms, applies only to claims arising from the "supply of goods" or termination of the Supply Agreement "as provided for herein." M G argues that its claims do not relate to either scenario, or at least raise a dispute as to the intent of the provision, such that the Court cannot hold at this stage that the provision bars the damages it seeks.
M G contends that it is entitled to partial summary judgment on two issues. First, M G requests that the Court hold as a matter of law that Carestream never invoked its contractual right to seek a price adjustment for 2008 on the basis of a competitive offer. Second, M G contends that Carestream was obligated as of July 12, 2007, to meet its PET resin requirements by purchasing from M G.
Carestream responds by emphasizing its position that M G's PET pellets were never accredited for use in its Windsor facility and that M G abandoned the parties' contractual relationship by discontinuing testing and technical efforts to achieve accreditation despite its own consultants' opinions that further trials were necessary. Carestream therefore considers the meet-competition clause of the Supply Agreement irrelevant, because it is applicable only if Carestream could obtain a "comparable" product (i.e., one that would function in the Windsor machines). Carestream also notes that the meet-competition provision was not available to it until January 1, 2008.
IV. Standard of Review
When considering a motion for summary judgment, the Court examines the record to ascertain whether genuine issues of material fact exist and to determine whether the moving party is entitled to judgment as a matter of law. Summary judgment will not be granted if, after viewing the evidence in the light most favorable to the non-moving party, there are material facts in dispute or if judgment as a matter of law is not appropriate.
Super. Ct. Civ. R. 56(c).
Storm v. NSL Rockland Place, LLC, 898 A.2d 874, 879-80 (Del. Super. 2005).
V. Analysis
Before analyzing the merits of the arguments before it, the Court recognizes that the law of New York will govern the substantive merits of the claim, pursuant to the choice-of-law provision contained in the Supply Agreement.Under New York law, the Court must interpret written contracts in conformity with the parties' intent. The first and best evidence to which the Court turns in discerning that intent is the text of the agreement itself. Accordingly, "a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms."
See, e.g., Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569 (N.Y. 2002); Slatt v. Slatt, 477 N.E.2d 1099, 1100 (N.Y. 1985).
Greenfield, 98 N.Y.2d at 562; WWW Assoc., Inc. v. Giancontieri, 566 N.E.2d 639, 642 (N.Y. 1990).
Greenfield, 98 N.Y.2d at 569; see also WWW Assoc., 566 N.E.2d at 642; Omansky v. Whitacre, 866 N.Y.S.2d 109, 109-10 (N.Y. App. Div. 2005).
The existence of ambiguity in a written contract is a question of law. An ambiguity arises "if the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings." The resolution of an ambiguous term is a question for the trier-of-fact if "determination of the intent of the parties depends on the credibility of extrinsic evidence or on a choice among reasonable inferences to be drawn from extrinsic evidence."
WWW Assoc., 566 NE.2d at 642; Van Wagner Adver. Corp. v. S M Enters., 492 N.E.2d 756, 758 (N.Y. 1986).
E-Z Eating 41 Corp. v. H.E. Newport, L.L.C., 2009 WL 1351228, at *10 (N.Y. Sup. Ct. Mar. 25, 2009) (quoting Feldman v. Nat'l Westminster Bank, N.A., 303 A.D.2d 271, 271 (N.Y. App. Div. 2003)).
Village of Hamburg v. Am. Ref-Fuel Co. of Niagara, 727 N.Y.S.2d 843, 845 (N.Y. App. Div. 2001).
Although the mere existence of cross-motions for summary judgment does not necessarily imply that summary judgment is inappropriate, in this case the cross-motions serve to highlight material factual disputes regarding liability. The parties contest whether M G's PET pellets were qualified for use at the Windsor facility under the Supply Agreement. This dispute is, in turn, central to the question of whether Carestream acted in good faith by declining to order PET pellets from M G and instead returning to the use of PET powder. Neither of these inquiries can be resolved by summary judgment.
The Court concludes that the Supply Agreement is ambiguous in its use of the term "qualified." The Supply Agreement states that Kodak's 2007 Maximum Annual Volume is to be prorated "to the number of full and partial months of the year that [M G's] PET pellets are qualified for use at the site and the site is capable of processing greater than 80% of their PET demand in the form of PET pellets." M G contends that the sole qualification process contemplated by the Supply Agreement is a Qualification Performance Requirements Event, referred to in § 12.3 as a basis for termination of the Supply Agreement and defined in the Kodak Park Agreement.
Supply Agreement, App. B (emphasis added).
Nothing in the provision stating that the PET pellets must be "qualified for use at the site" references § 12.3 or indicates that "qualified for use" is synonymous with the Qualification Performance Requirements Event defined in the Kodak Park Agreement. If the parties' intent was to invoke the Qualification Performance Requirements Event, it seems likely that they would have done so directly, rather than using the generic word "qualified" without any further explanation. Moreover, Carestream has presented documents and deposition testimony suggesting that a particular accreditation or qualification process at the Windsor facility was contemplated by both sides before Carestream's obligation to purchase under the Supply Agreement was triggered. The parties' intent as to how M G's PET resin pellets were to be "qualified," and the issue of whether they in fact achieved qualification and thus conformed with the contract, therefore remain questions of fact that must be resolved by the jury.
See, e.g., Docket 26 (Excerpted Dep. Tr. of Mark Adlam), at A-5, A-8; Docket 26 (Excerpted Carestream Change Management Request), at A-13-15; Docket 26 (Letter from Fred Fournier), at A-16.
Furthermore, these factual issues are central to the question of whether Carestream acted in good faith by negotiating with ECC to obtain PET powder in lieu of M G's PET pellets and in requesting price concessions from M G. Requirements contracts are governed by § 2-306(1) of the New York Uniform Commercial Code (UCC). Section 2-306(1) provides that:
See Laing Logging Inc. v. Int'l Paper Co., 644 N.Y.S.2d 91, 93 (N.Y. App. Div. 1996).
A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.
Federal courts applying New York's version of UCC § 2-306 have "exempted decreases in orders from the `unreasonably disproportionate' proviso and concluded that `when a buyer takes less than the stated estimate in a requirements contract, the sole test is good faith.'" The official comments to § 2-306 elaborate upon the circumstances under which a buyer's requirements may be increased or reduced:
MDC Corp. v. John H. Harland Co., 228 F. Supp. 2d 387, 396 (S.D.N.Y. 2002) (quoting Dienes Corp. v. Long Island R.R. Co., 2002 WL 603043, at *5 (E.D.N.Y. Mar. 19, 2002)).
Reasonable elasticity in the requirements is expressly envisaged by this section and good faith variations from prior requirements are permitted even when the variation may be such as to result in discontinuance. . . . The essential test is whether the party is acting in good faith.
U.C.C. § 2-306 cmt. 2.
The comments further suggest that any agreed estimate "is to be regarded as a center around which the parties intend the variation to occur." A plaintiff claiming a breach of § 2-306(1) must demonstrate not only that the defendant reduced or eliminated its requirements, but that there was "no legitimate business reason" for the reduction.
U.C.C. § 2-306 cmt. 3.
MDC Corp., 228 F. Supp. 2d at 496.
Citing to Dienes Corp. v. Long Island Rail Road Co., Carestream contends that the existence of any legitimate business reason for reducing requirements provides a buyer with an automatic presumption of good faith. This argument misreads Dienes. As Dienes in fact states, a buyer's decision must stem from motivations other than avoidance of the contract, and the presumption of good faith only arises "[a]bsent a showing that the buyer acted in bad faith" in reducing or eliminating its requirements. The buyer's decision must be motivated by considerations "independent of the terms of the contract or any other aspect of [the buyer's] relationship with [the seller]."
Dienes, 2002 WL 603043, at *3.
NCC Sunday Inserts, Inc. v. World Color Press, Inc., 759 F. Supp. 1004, 1009 (S.D.N.Y. 1991) (quoting Empire Gas Corp. v. Am. Bakeries Co., 840 F.2d 1333, 1339 (7th Cir. 1988)).
Here, Carestream is not entitled to a presumption of good faith because M G has made a sufficient showing of bad faith. M G argues that ECC's PET powder essentially substitutes for PET pellets in Carestream's film manufacturing process. Thus, by obtaining PET powder from ECC, Carestream did not actually reduce its requirements for PET resin, regardless of the resin's form, but rather breached the Supply Agreement by changing suppliers to obtain a comparable substitute good. M G's assertions find support in the deposition testimony of Carestream personnel that ECC's PET powder and M G's PET pellets were substitutes for each other in Carestream's process. Even if PET powder does not constitute a substitute for PET pellets, a triable issue of fact persists as to whether Carestream was motivated by a desire to avoid the Supply Agreement and whether Carestream acted in good faith in its trials to qualify M G's PET pellets for use on its Windsor facility machinery. By presenting evidence, including multiple internal e-mails from Carestream personnel, that suggests Carestream may have invented or exaggerated quality issues with M G's PET pellets in order to avoid the Supply Agreement, M G has raised a triable issue as to Carestream's good faith.
Docket 33, Ex. N (Excerpted Dep. Tr. of Todd N. Arndorfer), at 50.
See, e.g., Docket 30, Exs. D, E; Docket 33, Ex. S.
Turning to Carestream's argument that the Supply Agreement's liability limitation provision bars M G from seeking lost profits or consequential damages, the Court disagrees. Carestream cites several cases for the proposition that liability limitation provisions are permissible under UCC § 2-719(3) and will be enforced unless the defendant has committed "egregious intentional misbehavior evincing extreme culpability." The cases on which Carestream relies, however, involved damage limitation provisions that were clearly applicable to the plaintiff's claims and sufficiently broad that they would have limited damages for any breach of the contracts at issue.
Docket 26 (Def.'s Mot. for Summ. J.), at 4 (citing Tradex Europe SPRL v. Conair Corp., 2008 WL 1990464, at *3 (S.D.N.Y. May 7, 2008)).
See Tradex Europe SPRL, 2008 WL 1990464, at *1, 3 (applying provisions that limited contractual parties' liability for "all breaches of any provisions of [the agreement between the parties] or any other breaches of conditions or terms, or in any other way arising out of or related to [the] agreement for all causes of action whatsoever and regardless of the form of action" and provided that "under no circumstances shall any party be liable to any other party . . . for special, incidental, exemplary, punitive, multiple, consequential or indirect damages"); Net2Globe Int'l, Inc. v. Time Warner Telecom of N.Y., 283 F. Supp. 2d 436, 449 (S.D.N.Y. 2003) (applying limitation of liability agreement that provided "[i]n no event shall [defendant] be liable for any incidental, indirect, special, or consequential damages . . . regardless of the cause or foreseeability thereof.").
Here, by contrast, M G's action against Carestream seeks damages allegedly arising from Carestream's breach of its obligation to purchase under the Supply Agreement. The liability limitation contained in § 23.0 of the Supply Agreement limits both parties' liability to direct damages for claims "arising out of or in connection with supply of goods provided for under this agreement or for termination of this agreement as provided for herein." The plain language of the liability limitation does not contemplate a breach by either party involving or resulting in the non-supply of goods, nor does it address repudiation or termination of the Supply Agreement by means other than those provided in the contract. Accordingly, the Court cannot find that Carestream is entitled to summary judgment on the challenged portions of M G's damages claims.
Supply Agreement, § 23.0 (emphasis added).
M G's summary judgment motion also seeks a ruling by the Court that Carestream never invoked its right under the Supply Agreement's meet-competition clause to seek a price adjustment from M G in 2008. By its terms, the meet-competition clause could not be invoked until January 1, 2008. Carestream concedes that it could not invoke its rights under § 13.2 during 2007, although it asserts that this does not mean it could not have sought a price adjustment under § 13.2 had the parties' contractual relationship continued. Because the parties do not dispute that the meet-competition clause was inapplicable at the time of the alleged breach, M G's Motion for Partial Summary Judgment as to Carestream's fifth affirmative defense, asserting the meet-competition clause, will be granted. The Court notes, however, that its decision does not address the potential relevance of the meet-competition clause to M G's claimed damages, an issue not fully addressed by the parties upon these motions.
VI. Conclusion
For the foregoing reasons, Defendant Carestream's Motion for Summary Judgment is hereby DENIED. Plaintiff M G's Motion for Partial Summary Judgment is GRANTED in part as to Carestream's fifth affirmative defense and DENIED in part.IT IS SO ORDERED.