EMD Performance Materials Corp. v. Marque of Brands Ams. LLC.

578 F.Supp.3d 670

EMD PERFORMANCE MATERIALS CORP.

v.MARQUE OF BRANDS AMERICAS LLC.

CIVIL ACTION NO. 21-3050

United States District Court, E.D. Pennsylvania.

Filed January 6, 2022

Martha Guarnieri, Troutman Pepper Hamilton Sanders LLP, Philadelphia, PA, Jeffrey A. Carr, Troutman Pepper Hamilton Sanders LLP, Princeton, NJ, for EMD Performance Materials Corp.

Emily A. Cathcart, Matthew A. Lipman, McElroy Deutsch Mulvaney & Carpenter LLP, Philadelphia, PA, for Marque of Brands Americas, LLC.

MEMORANDUM

McHUGH, United States District Judge

The case arises out of a contract to supply ingredients for a lotion that provides a skin tan without exposure to the sun. Plaintiff EMD Performance Materials brought this action against Marque of Brands Americas to collect unpaid, past due bills. Marque disputes that any payment was late, based on what it contends was a previous course of conduct modifying the contract. It further contends it was entitled to protect itself against EMD's conduct under the doctrine of anticipatory breach and asserts a counterclaim for damages. In EMD's view, Marque owes EMD for the delivery of goods under individual invoices, independent of any obligations of breach under the underlying supply agreement, and that delivery made and accepted is sufficient grounds to justify judgment in its favor as to the purchase price of those goods. It further argues that Marque's undisputed breach of their agreement entitled EMD to repudiate the contract, making Marque's defense of anticipated breach legally irrelevant, warranting dismissal of the counterclaim. EMD brings the present motion for judgment on the pleadings as to Count I of its Complaint, seeking amounts owed on unpaid invoices that reflect the price of goods delivered and accepted by Marque plus contractual interest. EMD also moves to dismiss Marque's Counterclaim that seeks damages for EMD's alleged refusal to continue supplying Marque. For the reasons that follow, I conclude that EMD is entitled to judgment as a matter of law on the two unpaid invoices that came due prior to Marque's alleged notice of EMD's intent to breach. I further conclude that Marque's material breach on the first two invoices entitled EMD to suspend performance under both the literal terms of the agreements and the applicable principles of Pennsylvania law, which defeats Marque's defense to the remaining invoices. I will therefore grant EMD's motion for judgment on the pleadings and dismiss Marque's counterclaim.

I. Factual Background

For some time prior to October 2020, EMD sold Marque a certain chemical agent ("the Product") used in Marque's production of sunless tanning products. Answer ¶¶ 3, 9. It is not clear from the pleadings for how long this relationship lasted prior to its written formalization on October 15, 2020. The written agreement was memorialized in a document entitled "Material Supply and Consignment Inventory Agreement" (hereinafter "Supply Agreement"). ECF 10, Ex. A. The Supply Agreement included by annex a document entitled "General Terms and Conditions of Sale" (hereinafter "Terms & Conditions") provided by EMD. ECF 10. If there was any conflict between the Terms & Conditions and the Supply Agreement, the Supply Agreement was to govern. Supply Agreement ¶ 12.1.

The Supply Agreement details a supply mechanism designed to ensure predictability of demand for EMD and predictability of supply for Marque while balancing the cost constraints and risks of both parties. The Supply Agreement required EMD to provide a consignment inventory of the Product on Marque's premises. Id. ¶ 2.1. Marque had the right to withdraw from that consignment inventory at any time, id. ¶ 4.1, and would only be invoiced for the Product actually withdrawn, id. ¶ 4.6. If the consignment inventory was running low, Marque could submit a Replenishment Purchase Order ("RPO") for expected delivery within forty-five to sixty days. Id. ¶ 2.2. EMD was to confirm any RPOs within five days of receipt. Id. In order to assist EMD in anticipating Marque's needs, Marque was obligated to submit twelve-month forecasts of estimated Product purchases at the beginning of every month. Id. ¶ 3.6. EMD, in return, was obligated to "use commercially reasonable efforts to supply Product in the quantities ordered (subject to EMD's production capacity)." Id. ¶ 2.2. Under the terms of the Supply Agreement, Marque would send EMD a monthly report that detailed the amount of Product withdrawn during the course of the preceding month. Id. ¶ 4.4. Upon receipt of this report, EMD would "issue an invoice to [Marque] which shall be payable within sixty (60) business days of receipt by [Marque]." Id. ¶ 5.4. The Supply Agreement largely left management of the consignment inventory to Marque. Id. ¶¶ 3.1 – 3.5. However, it also provided EMD with "the right, at any time, to revoke in writing the authorization of Customer to make withdrawals from Consignment Inventory," id. ¶ 4.5, the right to inspect the inventory, id. ¶ 5.3, the right to have inventory in excess of forecasted purchases returned at the customer's cost, id. ¶ 5.5, and the right to the auditing and return of the entire consignment inventory upon cancelation or termination of the agreement, id. ¶ 5.6.

The Supply Agreement and the Terms & Conditions contained several additional terms that are relevant to interpreting the agreements, and to Marque's contention that the terms were in some sense altered by the parties’ course of conduct. First, the Supply Agreement contained an integration clause that included the Terms & Conditions as part of the agreement but excluded and superseded "any prior or contemporaneous written or oral communications, statements, or agreements between the Parties relating to such subject matter." Id. ¶ 12.1. This clause also included a written modification provision stating that "[a]ny changes or amendments to this Agreement must be in writing signed by authorized representatives of both Parties." Id. Second, the Supply Agreement contained a no-waiver provision stating that "[t]he failure of either Party to take action as a result of a breach of this Agreement by the other Party will constitute neither a waiver of the particular breech involved nor a waiver of either Party's right to enforce any or all provisions of this Agreement through any remedy granted by law or this Agreement." Id. ¶ 12.11. Finally, the agreement contains several clauses that purport to limit damages essentially to the purchase price of the goods, excluding various categories of damages such as consequential, incidental, special, punitive, indirect, and exemplary damages. See id. ¶¶ 6.6, 6.7; Terms & Conditions ¶ 7.3.

The Supply Agreement also set forth the terms relevant to the breaches alleged by the parties, including the rights that would accrue to the injured party. The parties agreed that "[a] delay of payment by [Marque]" would constitute material breach by Marque. Id. ¶ 8.3. Such a breach would allow EMD to issue notice and demand payment that, if not provided within thirty days, would entitle EMD to terminate the agreement. Id. Two additional provisions permitted EMD to suspend performance of filling RPOs if Marque was in material breach of the agreement. First, the Supply Agreement provided that "[e]ven after the delivery of an order confirmation by EMD, the obligation to deliver ... is contingent upon Customer's compliance with the terms and conditions of this Agreement ...." Id. ¶ 5.2. Second, the Terms & Conditions stated that "[i]n case of delay of payment by Purchaser, EMD reserves [the right to] ... terminate the order or suspend any further deliveries to Purchaser." Terms & Conditions ¶ 4.5. That same provision entitled EMD to "interest on all amounts due and unpaid after due date ... at least 8% p.a. above the published prime rate of Bank of America ..." in the event of a delay in payment. Id.

The factual dispute is relatively straightforward. In the simplest terms, Marque failed to pay several invoices within sixty days as provided in the Supply Agreement, and EMD demands satisfaction. EMD lists the past due invoices at Complaint ¶ 47, which I recapitulate:

Invoice No.	Invoice Date	Due Date	Amount
90767376	01/08/21	03/09/21	$72,680.00
90784747	02/03/21	04/04/21	$112,654.00
90802636	03/03/21	05/02/21	$65,412.00
90816313	03/18/21	05/17/21	$20,769.00
90815484	03/18/21	05/17/21	$43,008.00
90841500	05/03/21	07/02/21	$196,236.00
90853492	05/21/21	07/20/21	$159,896.00
Credit Memo	Rebate	($36,259.00)

Marque admits that it has not remitted payment on these invoices, Answer ¶¶ 47-48, and that the invoices remain outstanding, id. ¶ 44.

As will be discussed in greater detail below, Marque seeks to present a more complicated story. Marque first alleges that the parties’ course of conduct, both before and after formalizing the Supply Agreement, makes the sixty-day payment due date stated at ¶ 5.4 of the Supply Agreement unenforceable, and excuses Marque's failure to pay the past due invoices. See, e.g. , Answer ¶ 45. It should be noted that a due date corresponding to the agreement appeared on each invoice. ECF 10-1. Second, Marque claims that around April 21, 2021, after two of its invoices were already past due under the specific terms of the Supply Agreement, EMD communicated to Marque its intention to breach the Supply Agreement, in a bad faith effort to channel its production efforts away from the Product into more profitable lines of production. Counterclaim ¶¶ 40-47. In the Counterclaim, Marque specifically alleges that during that call, EMD informed Marque that "EMD had intentionally diverted its production/acquisition efforts and resources away from the Product and to other products." Id. ¶ 41.¹ Despite these allegations and despite Marque's non-payment on at least two of its invoices, EMD continued performance by approving three RPOs for a total of 22,500 kilograms of the Product. Id. ¶¶ 50-51. On May 18, 2021, EMD canceled all outstanding RPOs, which Marque contends constituted EMD's...