Higuchi Int'l Corp. v. Autoliv ASP, Inc.

688 F.Supp.3d 582

HIGUCHI INTERNATIONAL CORPORATION d/b/a Higuchi Manufacturing Americaand Higuchi Manufacturing Mexico S. de R.L. de C.V., Plaintiffs, v. AUTOLIV ASP, INC., Defendant.

Case No. 23-cv-11869

United States District Court, E.D. Michigan, Southern Division

Signed August 18, 2023

Brandon S. Corcoran, Todd A. Holleman, Miller Johnson, Detroit, MI, for Plaintiffs.

Christopher R. Struble, Jason D. Killips, Michael R. Turco, Brooks Wilkins Sharkey & Turco, Birmingham, MI, for Defendant.

OPINION AND ORDER DENYING PLAINTIFFS' EXPEDITED MOTION FOR DECLARATORY JUDGMENT (ECF No. 11); DISMISSING WITH PREJUDICE PLAINTIFFS' AMENDED COMPLAINT (ECF No. 3); AND GRANTING DEFENDANT'S EMERGENCY MOTION FOR A PRELIMINARY INJUNCTION (ECF No. 14)

Paul D. Borman, United States District Judge

I. BACKGROUND

A. Autoliv orders steel parts from Higuchi through purchase orders and releases.

Defendant and Counterclaim-Plaintiff Autoliv ASP, Inc. is a tier-1 automotive manufacturer that has in recent history bought "more than 170 [unique stamped steel] parts" that it uses to build "various seatbelt systems" from Plaintiffs and Counterclaim-Defendants, and tier-2 manufacturers, Higuchi International Corp. d/b/a Higuchi Manufacturing America and Higuchi Manufacturing Mexico S. de R.L. de C.V. (collectively, "Higuchi"). (ECF No. 11, PageID 187; ECF No. 14, PageID 306.)

At issue here are a series of purchase orders and subsequent releases executed by the parties. The purchase orders provide, in relevant part:

I. STATEMENT OF WORK

1.0 This blanket contract is issued to cover Autoliv ASP, Inc.'s requirements of the parts listed below, for the period beginning 05/01/22 [or a different date, depending on the purchase order] and ending upon the termination of the vehicle platform, including service part requirements, for which the parts listed herein are used. Deliveries shall be made only in the quantities and at the time specified in such requirements. Autoliv ASP, Inc. shall reserve the right to change, from time-to-time, the quantities specified in any part requirement. In such event Autoliv ASP, Inc. shall be under no obligation to [Higuchi]¹ unless the delivery or fabrication of such parts or the acquisition of such raw materials was specifically authorized in a Release delivered to [Higuchi] from Autoliv ASP, Inc[.]

(ECF No. 3, PageID 48; see also ECF Nos. 11-3 and 14-3.) As alluded to in that paragraph, the purchase orders also contain a list of parts that includes, among other things, part numbers, descriptions, and unit costs.

Further, the purchase orders include the following "Note I" (among other Notes):

This Purchase Order/Contract does not constitute Autoliv's promise to order or buy any volume of or level of service, unless separately confirmed in writing by Autoliv or electronically in accordance with established means. Nor does this purchase order/contract represent Autoliv's promise to purchase items or services beyond mutually agreed time periods[.]

(ECF No. 3, PageID 51.)

Additionally, the purchase orders "incorporate[ ] by reference" some other documents, including a Purchase Order Terms and Conditions document (labelled "ASP-544, Rev. 11/08"). (ECF No. 3, PageID 52.) These Terms and Conditions set the following rights and obligations (among others):

Article 25. BREACH BY SELLER; AUTOLIV ASP'S RIGHT TO TERMINATE FOR CONVENIENCE

. . .

(b) In addition to any other rights of Autoliv ASP to cancel or terminate this Contract, Autoliv ASP may at its option immediately terminate all or any part of this Contract or releases hereunder, at any time and for any reason, by giving written notice to Seller . . . .

(c) Notwithstanding the foregoing, Autoliv ASP shall not be obligated to make payments for finished goods, work-in-progress or raw materials fabricated or purchased by Seller in excess of amounts authorized by this Contract and delivery releases issued by Autoliv ASP hereunder . . .

(ECF No. 11-3, PageID 234-35.)

A Release produced by Autoliv shows a list of parts with "[s]hip [d]ates" and "[r]elease [quantities]." (ECF No. 11-4.)

B. The Michigan Supreme Court releases the Airboss decision.

On July 11, 2023, the Michigan Supreme Court entered its decision in MSSC, Inc. v. Airboss Flexible Products Co. In this decision, the Court crystallized what the "quantity term" of the Uniform Commercial Code ("UCC")'s statute of frauds provision demands, clarified the distinction between requirements contracts and release-by-release contracts, and provided important guidance for purchase-order-followed-by-release arrangements like the one at issue here.

The Michigan Supreme Court began Airboss by noting that, "[u]nder Michigan law, contracts for the sale of goods—including supplier contracts—are governed by the [UCC], MCL 440.1101 et seq." MSSC, Inc. v. Airboss Flexible Products Co., 999 N.W.2d 335, 338, No. 163523 (Mich. July 11, 2023). It then relayed that "[t]he UCC contains a statute-of-frauds provision that" states that " 'a contract for the sale of goods for the price of $1,000 or more is not enforceable . . . unless there is a writing sufficient to indicate that a contract for sale has been made' " and that " 'the contract is not enforceable under this subsection beyond the quantity of goods shown in the writing.' " Id. (quoting MCL § 440.2201(1)) (internal italicization omitted). The Supreme Court emphasized that, "[w]hen a contract fails to include a quantity term, parol evidence—that is, evidence outside the contract itself—'[cannot] be offered to supply a missing quantity term.' " Id. (quoting In re Frost Estate, 130 Mich. App. 556, 559, 344 N.W.2d 331 (1983)).²

The Court also noted, however, that the UCC "allows for a contract's quantity to be measured 'by the output of the seller or the requirements of the buyer,' " and thereby "allows for parties to enter into contracts that provide a quantity term but lack specificity as to the total of goods agreed upon." Id. (quoting MCL § 440.2306(1)). In keeping with that allowance, the Court stated that "output contract[s]," which "define[ ] quantity by the supply provided by the seller," and "requirements contract[s]," which "define[ ] quantity by reference to the buyer's requirements," contain enforceable quantity terms. Id. at 339. It explained:

In agreements between a buyer and supplier-seller, requirements contracts are often created by an umbrella agreement, which is also referred to as a 'blanket purchase order.' This umbrella agreement sets forth the terms governing items such as price, length of the contract, warranty details, indemnification, and termination. Most importantly, in a requirements contract, the terms of the blanket purchase order also dictate that the buyer will obtain a set share of its total need from the seller (such as 'all requirements of the buyer'). This phrase satisfies the quantity term required by the statute of frauds. To supplement this general term, the buyer will typically later issue 'releases' to let the seller know its specific short-term requirements.

Id. at 339-40 (internal citations omitted).

The Court contrasted output and requirements contracts with "release-by-release contracts." These latter contracts, the Court detailed,

are governed by a blanket purchase order that sets the overall contract terms, and the buyer issues subsequent releases that set forth the specific quantity the buyer needs. But unlike a requirements contract, the blanket purchase order does not set forth the share of the buyer's need to be purchased from the supplier. Instead, the purchase order is more appropriately thought of as an umbrella agreement that governs the terms of future contract offers. Although the seller is not bound to accept future orders in the same manner as with a requirements contract, the seller is bound by the terms agreed to in the purchase order when future releases are issued and accepted.

Id. at 340 (internal citations omitted). Put simply, the umbrella agreements in release-by-release contracts do not contain sufficient quantity terms; instead, the quantity terms are supplied in the individual releases. Id. The Court stressed:

The key difference between a requirements contract and a release-by-release contract rests in the level of mutual obligation between the parties and the risk each party bears. A requirements contract assures the seller that the buyer will be a customer for the length of the contract, but the seller cannot reject future orders for the length of the contract. In contrast, a release-by-release contract gives both parties the freedom to allow their contractual obligations to expire in short order by either not issuing or not accepting a new release. The seller cannot be guaranteed future business from the buyer, but the seller can accept or reject any offer for future orders.

Id. at 340-41 (internal citations and quotation marks omitted).

Turning to the facts of and arguments in the specific case before it, the Supreme Court held that the term "blanket order" does not encompass a quantity term nor create a requirements contract and that "an implied duty of good faith and fair dealing" does not do so either. Id. at 344-48. "It concluded that the parties [had] entered into a release-by-release contract." Id. at 347-48.

C. Higuchi files this case, and both parties move for expedited relief.

On August 2, 2023, a few weeks after Airboss came out, Higuchi filed this lawsuit against Autoliv. (ECF No. 1.) Two days later, Higuchi filed an amended complaint alleging that "the blanket purchase order does not constitute an enforceable contract for the sale of goods because it lacks a quantity term." (ECF No. 3, PageID 45.) Higuchi asked for only one form of relief: "a declaratory judgment . . . finding that the 'blanket' purchase order between the parties is not enforceable under Michigan law, and that the only enforceable contracts between Higuchi and Autoliv are the individual purchase contracts formed when Higuchi accepts one of Autoliv's...