Scantibodies Lab., Inc. v. Church & Dwight Co.

SCANTIBODIES LABORATORY, INC., Plaintiff, v. CHURCH & DWIGHT CO., INC., Defendant.

14-cv-2275 (JGK)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

September 19, 2018

MEMORANDUM OPINION AND ORDER

JOHN G. KOELTL, District Judge:

The plaintiff, Scantibodies Laboratory, Inc. ("SLI"), manufactured pregnancy test kits ("PTKs") and sold them to the defendant, Church & Dwight Co., Inc. ("C&D") pursuant to two contracts. Although the agreements did not require SLI to supply all of C&D's requirements for PTKs, SLI argues that the import of the agreements was that C&D was required to satisfy all of its requirements for PTKs by buying them from SLI. When C&D ceased ordering PTKs from SLI, SLI sued C&D for breach of those contracts, and C&D filed counterclaims against SLI for conversion and prima facie tort.

C&D and SLI have both moved for summary judgment on the breach-of-contract claims, and SLI has moved for summary judgment to dismiss the counterclaims. For the reasons stated below, C&D's motion for summary judgment dismissing SLI's breach-of-contract claims is granted and SLI's motion for summary judgment on those claims is denied. SLI's motion for summary judgment dismissing the counterclaims is granted in part and denied in part.

I.

The standard for granting summary judgment is well established. "The Court shall grant summary judgment 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); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Gallo v. Prudential Residential Servs., Ltd. P'ship, 22 F.3d 1219, 1223 (2d Cir. 1994). "[T]he trial court's task at the summary judgment motion stage of the litigation is carefully limited to discerning whether there are any genuine issues of material fact to be tried, not to deciding them. Its duty, in short, is confined at this point to issue-finding; it does not extend to issue-resolution." Gallo, 22 F.3d at 1224. The moving party bears the initial burden of "informing the district court of the basis for its motion" and identifying the matter that "it believes demonstrate[s] the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323. The substantive law governing the case will identify those facts which are material and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

In determining whether summary judgment is appropriate, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Summary judgment is improper if there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party. See Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 37 (2d Cir. 1994). If the moving party meets its burden, the nonmoving party must produce evidence in the record and "may not rely simply on conclusory statements or on contentions that the affidavits supporting the motion are not credible." Ying Jing Gan v. City of New York, 996 F.2d 522, 532 (2d Cir. 1993); see also Scotto v. Almenas, 143 F.3d 105, 114-15 (2d Cir. 1998). If there are cross motions for summary judgment, the Court must' assess each of the motions and determine whether either party is entitled to judgment as a matter of law. Admiral Indem. Co. v. Travelers Cas. & Sur. Co. of Am., 881 F. Supp. 2d 570, 574 (S.D.N.Y. 2012); see also Elastic Wonder, Inc. v. Posey, 179 F. Supp. 3d 307, 310 (S.D.N.Y. 2016). A court may grant summary judgment on a contract claim "when the contractual language is 'plain and unambiguous.'" Zurich Am. Ins. Co. v. ABM Indus., Inc., 397 F.3d 158, 164 (2d Cir. 2005) (quoting Brass v. Am. Film Techs., Inc., 987 F.2d 142, 148-49 (2d Cir. 1993)).

II.

The following facts are undisputed except where noted.

In 1995, SLI entered into a contract with pharmaceutical and consumer-products firm Carter-Wallace, Inc., under which SLI provided Carter-Wallace with analog PTKs. Pl.'s 56.1 Stmt. ¶ 3. C&D acquired Carter-Wallace's consumer-products division in 2001 and continued to do business under the contract between Carter-Wallace and SLI. Id. ¶ 4; Def.'s 56.1 Stmt. ¶ 6. The contract required Carter-Wallace, and subsequently C&D, to purchase at least 90 percent of its PTKs from SLI. See Def.'s 56.1 Stmt. ¶ 7.

The 1995 contract remained in effect until July 2009, when C&D and SLI entered into a superseding contract for analog PTKs. Id. ¶¶ 4, 8; see Leader Decl. Ex. 1. The agreement had a five-year term. Def.'s 56.1 Stmt. ¶ 4. In June 2010, the parties entered into a substantively identical contract for digital PTKs,¹ also to last five years. Id. ¶ 5; see Leader Decl. Ex. 2. These contracts ("the Agreements") are the subject of this action. Both contracts contain a provision stating that they "shall be interpreted in accordance with, and governed by the laws of the State of New York." Leader Decl. Ex. 1 § 18.2.

SLI contends that the Agreements are requirements contracts, obligating C&D to purchase all of its PTK requirements from SLI. C&D disagrees, arguing that the Agreements themselves contain no language or provisions that require C&D to purchase any quantity of PTKs from SLI, much less all of its requirements.

The Agreements contain no requirement that C&D purchase any fixed quantity of PTKs from SLI. Rather, the Agreements set out a forecast and production process as follows. C&D was required to, "[f]rom time to time during the [contractual period]," issue a nonbinding purchase order for its "estimated requirements" for an identified period. Id. § 6.1. C&D was obligated to issue to SLI a monthly production plan specifying (1) a one-month "firm requirement for the following month against the then outstanding [purchase order] . . . to be ready for delivery" by the end of the following month or within forty-five days, whichever is later; (2) "a second and third month tentative requirement"; and (3) a nonbinding, nine-month estimated requirement. Id. § 6.1.1. SLI was required to fulfill all purchase orders unless they deviated by greater than 10 percent from the amount of PTKs reflected in the first three months of the applicable production plan. Id. § 6.1.3, Prices for the products were set out in an Exhibit to the Agreements and there was a mechanism for SLI to change prices for the PTKs. Id. §§ 4.2.2, 4.2.3. Nothing in theAgreements specified that, when following the order process, C&D was required to order any particular quantity of PTKs from SLI.

Between late 2011 and March 2012, C&D issued a request for proposal for the same PTKs that SLI supplied under the Agreements. Def.'s 56.1 Stmt. ¶¶ 52-53. SLI participated in the request for proposal, and in April 2012 provided C&D with a proposal covering January 2013 to December 2017. Id. ¶¶ 61-62. This proposal included reduced pricing and "[c]ontinued annual savings." Id. (alteration in original). C&D ultimately entered into an agreement for the assembly and packaging of PTKs with another company in December 2012. Id. ¶ 64. It also began its process of qualifying yet another company to provide the PTK housing materials. Id. ¶ 77; Pl.'s 56.1 Stmt. ¶ 45. Nonetheless, C&D allowed its 2009 Agreement with SLI to renew in March 2013 and continued to send monthly production plans to SLI. Pl.'s 56.1 Stmt. ¶¶ 51-52.

Representatives of C&D and SLI met in late October 2013. Id. ¶ 54. C&D's representatives stated that SLI did not win the request for proposal, that C&D was switching producers, and that SLI would receive a "zero forecast" after December 2013 — that is, C&D would cease ordering PTKs from SLI. Id.; Def.'s 56.1 Stmt. ¶ 130. According to SLI, a C&D representative added specifically that C&D was not terminating the contract. Pl.'s 56.1 Stmt. ¶ 55. C&D claims that no such statement was made.Def.'s Opp'n 56.1 Stmt. ¶ 55. Nevertheless, C&D continued placing orders with SLI through December 2013. See Pl.'s 56.1 Stmt. ¶ 56.

SLI filed this lawsuit in April 2014, alleging that C&D breached the Agreements by reducing its orders to zero, purchasing PTKs from other producers, and failing to use best efforts to promote the sale of SLI's PTKs. See Compl. ¶¶ 85, 92. C&D answered SLI's Complaint and asserted counterclaims for conversion and prima facie tort, alleging that SLI refused to return C&D-owned equipment that SLI possessed despite C&D's attempts to retrieve it. See Def.'s Am. Answer ¶¶ 21-46.

At issue are the parties' summary judgment motions. C&D and SLI both move for summary judgment on SLI's breach-of-contract claims, and SLI additionally moves for summary judgment dismissing C&D's counterclaims.

III.

A.

The core issue is whether the Agreements are requirements contracts. SLI argues that the Agreements are requirements contracts that obligate C&D to purchase all of its PTK requirements exclusively from SLI. C&D argues that the Agreements impose no such obligation. The plain terms of theAgreements as well as the clear parol evidence show that the Agreements are not requirements contracts.²

Under a requirements contract, the buyer must purchase all of its needs for a particular product during a particular period exclusively from the seller. See N.Y. U.C.C. § 2-306(1); Crown Battery Mfg. Co. v. Club Car, Inc., No. 12cv2158, 2014 WL 587142, at *3 (N.D. Ohio Feb. 14, 2014) (interpreting New York law); see also RBC Aircraft Prods., Inc. v. Precise Machining & Mfg., LLC, 26 F. Supp. 3d 156, 180 (D. Conn. 2014) (interpreting Connecticut law), rev'd on other grounds, 630 F. App'x 11 (2d Cir. 2015). Because the buyer cannot typically forecast its precise needs, quantity is not fixed at the time of contracting. But "the requisite mutuality and consideration for a valid contract is found in the legal detriment...