KGP Telecommunications, LLC v. Ervin Cable Constr.

KGP TELECOMMUNICATIONS, LLC, f/k/a KGP Telecommunications, Inc., Plaintiff, v. ERVIN CABLE CONSTRUCTION, LLC, Defendant.

No. 20-CV-0114 (PJS/ECW)

United States District Court, D. Minnesota

September 21, 2021

Ryan A. Olson and Daniel R. M. Haller, FELHABER LARSON, for plaintiff.

Matthew R. McBride, John C. Holper, and Quin C. Seiler WINTHROP & WEINSTINE, PA, for defendant.

ORDER

Patrick J. Schiltz, United States District Judge

In April 2014, Google Fiber Inc. (“Google”) hired the parent company of defendant Ervin Cable Construction, LLC (“Ervin”) to construct portions of Google's fiber-to-the-home network (“Google projects”). Ervin then hired plaintiff KGP Telecommunications, LLC (“KGP”) to keep Ervin supplied with the products it needed to do timely work on the Google projects. After the Google projects ended, KGP had in its inventory products that it had ordered for Ervin, but that Ervin did not want (because the Google projects had ended) and that KGP could not sell to other contractors (because the products were suitable only for the Google projects). KGP told Ervin that under the parties' contract, Ervin was required to reimburse KGP for these leftover products. Ervin disagreed, and this lawsuit resulted.

Both KGP and Ervin have now moved for summary judgment. In this order, the Court construes the disputed terms in the parties' contract. It is clear that, under the Court's construction, KGP is entitled to significant damages from Ervin. But because the parties did not take discovery or brief their motions with the Court's construction in mind, the record does not allow the Court to determine exactly how much Ervin must pay KGP. Thus, the Court denies both motions for summary judgment and invites the parties to confer with Magistrate Judge Elizabeth Cowan Wright about what additional discovery and proceedings are necessary for the Court or a jury to be in position to determine the amount of damages that Ervin owes KGP under the Court's construction of the parties' contract.

I. BACKGROUND

Ervin is “a general contractor for telecommunications installation.” Olson Decl. Ex. A, Pinkston Dep. 121:22-23. On April 15, 2014, Ervin's parent company and Google signed the Master Turnkey Engineering, Procurement and Construction Contract (“Google contract”), under which Ervin agreed to do construction work on particular fiber-to-the-home projects. Id. at 56:1-22; Olson Decl. Ex. C. In order to meet its deadlines, Ervin needed a reliable and uninterrupted supply of products, so it hired KGP to provide “supply chain and integration services.” Locke Decl. ¶ 2. After months of negotiations, Ervin and KGP entered into a Master Sales Agreement (“MSA”), effective November 1, 2014. McBride Decl. Exs. A, G-L. Ervin and KGP also signed statements of work (“SOWs”) for Google projects in Kansas City, id. Ex. B, and San Antonio, id. Ex. C. Those SOWs were incorporated into and became part of the MSA. MSA §§ 3, 16.14.

Under the MSA, KGP agreed to provide a wide range of products to Ervin. This lawsuit concerns only some of those products-specifically, what the MSA refers to as “unique products.” (Those products are identified in Schedule E^[1] of the MSA. Id. § 1.2 & Schedule E.) Ervin wanted to ensure that it would always have an adequate supply of unique products so that its work would never have to be delayed or interrupted. See Olson Decl. Ex. D, Ervin Dep. 43:15-24. Two provisions of the MSA were designed to further that goal:

First, the MSA set out four key performance indicators (“KPIs”) and corresponding “targets, ” MSA § 7.10, which were used to “track [KGP's] progress against the business objectives of” the MSA, id. § 1.2. One of these KPIs was the “Inventory-to-Sales Ratio, ” which provided that “[d]uring the term of this Agreement, [KGP] will maintain a sixty (60)-day inventory of Unique Products based upon a rolling average of [Ervin's] previous two (2) months' usage thereof.” Id. § 7.10. The Court will refer to this as the “60-day-inventory requirement.”

Second, the SOWs (which, again, were part of the MSA) required Ervin and KGP to jointly create a “stocking strategy” to ensure that “[i]tems will be stocked, as needed, to meet the . . . requirements” of § 7.10^[2] of the MSA-including, of course, the 60-day-inventory requirement. McBride Decl. Ex. B at 3.^[3]The first step for implementing this stocking strategy was for KGP to “establish inventory levels based upon [Ervin's] forecast.” Id. After that, KGP was required to “conduct regular demand, inventory levels and lead time analysis to determine the levels of inventory required to support forecasted demand levels.” Id. Ervin would review KGP's inventory recommendations and provide forecasted demand levels to assist KGP in developing the stocking strategy. Id. The SOWs required KGP to “place orders” with manufacturers “[b]ased on the stocking strategy.” Id.

As noted, in order to meet the 60-day-inventory requirement, KGP needed to look backward to Ervin's “previous two (2) months' usage.” MSA § 7.10. But the SOWs required KGP to look forward to Ervin's forecasts of future demand. Obviously, Ervin would sometimes forecast that it would need more of a particular unique product in the future than it had used in the recent past. Thus, the SOWs clearly envisioned that the amount of unique products stocked by KGP would exceed the bare minimum necessary to comply with the 60-day-inventory requirement. And, in practice, that is what happened. As Ervin well knew-because KGP and Ervin met frequently to discuss inventory levels, McBride Decl. Ex. F, Pinkston Dep. 14:19-16:7-KGP maintained a supply of unique products that exceeded the 60-day-inventory requirement. See, e.g., Olson Decl. Ex. L at 13.

The Google projects ended in 2017, Locke Decl. ¶ 5, and Ervin stopped ordering unique products from KGP in October of that year, McBride Decl. Ex. Q at 9. As a result, KGP was left holding in its inventory unique products that Ervin did not need (because the Google projects were finished) and that KGP could not sell (because the products were unique to the Google projects). A dispute arose between Ervin and KGP over which party bore financial responsibility for the unique products left in KGP's inventory. That dispute is the subject of this lawsuit.

II. ANALYSIS

A. Standard of Review

Summary judgment is warranted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A dispute over a fact is “material” only if its resolution might affect the outcome of the suit under the governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute over a fact is “genuine” only if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. “The evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in [its] favor.” Id. at 255.

B. Ervin's Financial Responsibility

The parties devoted a substantial portion of their briefs to arguing about the meaning of the 60-day-inventory requirement in § 7.10. Unfortunately, the parties largely talked past each other, and thus they failed to realize-until they were questioned by the Court at oral argument-that they actually agree on the meaning of § 7.10. Specifically, the parties agree on the following:

First, § 7.10 required KGP to stock a 60-day inventory of unique products. At every moment during the parties' contractual relationship, KGP was required to have on hand at least a 60-day inventory.

Second, § 7.10 did not require KGP to stock more than a 60-day inventory. In other words, if at a particular moment (say, 4:00 pm on Wednesday, July 20, 2016) KGP had in stock exactly the number of unique items necessary to meet the 60-day-inventory requirement-and not one item more-KGP would not be in breach of the MSA at that moment.

And third, § 7.10 did not prohibit KGP from exceeding the 60-day-inventory requirement. In other words, if at any time KGP had in stock more than the number of unique products necessary to meet the 60-day-inventory requirement, KGP would not be in breach of the MSA.

Not only did the parties fail to recognize that they largely agreed on the meaning of § 7.10, but they also failed to recognize that § 7.10 does not directly address the subject of their dispute. Instead, their dispute is controlled by § 7.7 of the MSA, which explicitly addresses the extent of Ervin's obligation to pay KGP for the unique products left in its inventory after the Google projects ended. Section § 7.7 provides in relevant part:

[Ervin] ¶ 100% financially responsible for any Unique Products purchased by [KGP] on [Ervin's] behalf (a) in the event that [Ervin's] underlying Master Turnkey Engineering Procurement and Construction Contract with Google Fiber Inc. (“Google”) relating to the Project is terminated by Google for any reason; (b) in the event that the Project is abandoned, terminated or otherwise cancelled by Google for any reason; (c) in the event that the Agreement between [KGP] and [Ervin] is terminated, expires or is otherwise cancelled for any reason except termination for Material Breach; or (d) upon completion of the project (the occurrence of any of the above, a “Termination”).

The parties agree that the ending of the Google projects was a “Termination” for purposes of § 7.7. Therefore, § 7.7 is crystal clear that Ervin must pay KGP “for any Unique Products purchased by [KGP] on [Ervin's] behalf.” What is not crystal clear-at least to the parties-is the meaning of “on Ervin's behalf.” Resolving the parties' dispute requires the Court to interpret that term.

“The primary goal of contract interpretation is to determine and enforce...