FutureFuel Chemical Company v. Lonza Inc et al
ORDER granting 44 Motion summary judgment and dismissing this action with prejudice. Signed by Judge Susan Webber Wright on 9/13/12. (kpr)
IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
NO: 1:11CV00061 SWW
FutureFuel Chemical Company (“FFCC”) filed this breach of contract action against
Lonza, Inc. (“Lonza”) in state court, and Lonza removed on the basis of diversity of citizenship
between the parties and an amount in controversy exceeding $75,000. Before the Court is
Lonza’s motion for summary judgment (docket entries #44, #45, #46, filed under seal), FFCC’s
response in opposition (docket entries #47, #48, #49, #50, filed under seal), and Lonza’s reply
(docket entry #51, filed under seal). After careful consideration, and for reasons that follow,
summary judgment is granted in Lonza’s favor, and this action is dismissed with prejudice.
Summary judgment is appropriate when “the pleadings, the discovery and disclosure
materials on file, and any affidavits show that there is no genuine issue as to any material fact
and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). As a
prerequisite to summary judgment, a moving party must demonstrate “an absence of evidence to
support the non-moving party’s case.” Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).
Once the moving party has properly supported its motion for summary judgment, the nonmoving party must “do more than simply show there is some metaphysical doubt as to the
material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
The non-moving party may not rest on mere allegations or denials of his pleading but
must “come forward with ‘specific facts showing a genuine issue for trial.’” Id. at 587 (quoting
Fed. R. Civ. P. 56(e)). “[A] genuine issue of material fact exists if: (1) there is a dispute of fact;
(2) the disputed fact is material to the outcome of the case; and (3) the dispute is genuine, that is,
a reasonable jury could return a verdict for either party.” RSBI Aerospace, Inc. v. Affiliated FM
Ins. Co., 49 F.3d 399, 401 (8th Cir. 1995).
The following facts are undisputed.1 FFCC manufactures and sells chemicals at its
facility in Batesville, Arkansas, and Lonza supplies advanced pharmaceutical ingredients and
intermediates for the pharmaceutical industry. During the events at issue in this case, Lonza
operated a manufacturing facility in Pennsylvania, hereinafter “Riverside,” where it
manufactured an advanced intermediate product called trityl losartan (“TTL”) for only one
customer: Merck Pharmaceuticals (“Merck”) .
DEM is a solvent component used in the production of TTL. Either virgin or recycled
DEM is used to produce TTL, provided that it meets certain specifications. Prior to 2009, Lonza
purchased its DEM requirements from Eastman Chemicals (“Eastman”). Lonza also utilized its
own recovered or recycled DEM, but its recovery rates were variable and unreliable.
Local Rule 56.1 provides that a party moving for summary judgment must submit a
statement of the material facts as to which it contends there is no genuine issue to be tried, and
the non-moving party must file a responsive statement of the material facts as to which it
contends a genuine issue exists to be tried. “All material facts set forth in the statement filed by
the moving party . . . shall be deemed admitted unless controverted by the statement filed by the
non-moving party . . . . ” Local Rule 56.1(c).
In early 2008, Lonza learned that Eastman had plans to exit the DEM production
business, and it and began looking for a replacement supplier. In May 2008, Lonza authorized
Dr. Marten Luggen (“Luggen”), who worked for Lonza’s strategic sourcing custom
manufacturing group, to investigate Lambiotte & Cie (“Lambiotte”), a company located in
Belgium, and FFCC as potential DEM suppliers. At that time, Lambiotte was an established
DEM supplier, and FFCC had never produced DEM.
At the same time that Lonza was investigating replacement suppliers, FFCC learned that
Eastman was planning to cease production of DEM, and it began exploring the possibility of
expanding its business to include DEM production. FFCC conducted market research and
identified known DEM users including BASF, DuPont, and Lonza.
FFCC authorized its representative, Daniel Allgeier (“Allgeier”), to contact Lonza
regarding a potential DEM supply opportunity. On May 16, 2008, Allgeier spoke to Lonza’s
Jennifer Schauble (“Schauble”), who worked at Riverside as a purchaser. Allgeier told Schauble
that FFCC was taking steps to cover Lonza’s DEM requirements for late 2008 and early 2009,
and Schauble informed him that Lonza used a DEM recovery system at Riverside, which
impacted the amount of DEM Lonza would require. See Def.’s Exs. #4, at 35-36, #14. Schauble
also told Allgeier that (1) Lonza’s demand for DEM at that time was between two and five
truckloads per month, (2) she could not forecast Lonza’s DEM requirements beyond 2009, (3)
Lonza’s demand for DEM depended on Merck’s projected demand for TTL, and (4) Lonza’s
demand for DEM would decrease in 2010. See Def.’s Ex. #14.
By June 12, 2008, FFCC had developed and approved a plan for entering the DEM
production business, which called for a $1.7 million capital expenditure for the construction of a
DEM production facility. See Def’s Exs. #12, #13. According to a document setting forth
FFCC’s economic projections for the DEM project, FFCC contemplated revenue from DEM
sales to DuPont, BASF, and Lonza. See Def’s Ex. #12. An FFCC document titled “DEM
Project Evaluation, June 12, 2008" includes a list of advantages and risks, with the entry: “must
get long term deal from Lonza.” Def’s Ex. #12.
On June 17, 2008, Lonza representatives, including Luggen, visited FFCC’s Batesville
facility and met with FFCC representatives, including Dr. Slaton Fry (“Fry”) and Allgeier.
During those meetings, Allgeier and Fry learned that Lonza’s DEM requirements varied
according to the success of Lonza’s DEM recycling process. See Allgeier Dep. at 50, Fry Dep.
at 53. Based on the information that he had obtained, Allgeier assumed that Lonza’s need for
DEM existed only because it required DEM to fulfill its supply obligations to Merck. Allgeier
also understood that the uncertainty surrounding Lonza’s DEM requirements presented a risk to
The following colloquy is taken from a transcript of Allgeier ’s deposition testimony:
Did you know prior to August 26, 2009 that Merck was the only customer
for Lonza for which it needed DEM?
I assumed that, yes.
Did that cause you to believe that this was any more of a riskier
negotiation that you were entering into with Lonza?
There was risk.
Was there risk to Lonza as well?
Yes, of course there’s risk.
Def’s Ex. #4, Allgeier Dep. at 103.
After the Batesville meeting, Lonza and FFCC agreed to evaluate a potential DEM
supply arrangement that would include both a long-term DEM supply agreement and an interim
storage solution for Lonza’s final purchase of DEM from Eastman.
On July 22, 2008, Fry wrote a letter to Ted Dolan (“Dolan”), the general manager at
Riverside, proposing that Lonza and FFCC agree to sign a letter of intent before August 15,
2008, which would describe “in broad terms a future agreement that include[d] the use of FFCC
tanks to store products for an interim bridging strategy plus supply of material to Lonza . . . over
a longer period of time.” Plf’s Ex. #1, Fry Dep., attached Ex. #3. Fry suggested that the parties
agree to complete a formal supply agreement to be executed by October 1, 2008, and he quoted
an initial price for FFCC-manufactured DEM that would be valid through October 1, 2008. Id.
As for quantity, Fry proposed that FFCC supply 100% of Lonza’s DEM requirements for its
North America operations for years 2009 through 2011. Id.
In deposition, Fry testified that FFCC’s management required that he obtain a
commitment from Lonza before he could “begin the project.” Def’s Ex. #6, Fry Dep. at 62.
According to Fry, FFCC considered pursing an executed supply agreement or a noncancellable
purchase order, but it decided to seek a letter of intent because “time was of the essence because
Lonza had lost [its] supply.” Id. at 63. Fry also acknowledged that as of July 2008, Lonza’s
DEM requirements were uncertain. Id.
On July 28, 2008, Luggen, Allgeier, and Fry participated in a teleconference to discuss
Fry’s July 22 letter. See Plf’s Ex. #3, Dolan Dep., attached Ex. #30. According to Fry’s notes
from the meeting, Luggen indicated that FFCC’s proposed price was acceptable but Lonza was
uncomfortable committing 100% of its DEM requirements to one supplier. Id. Fry wrote that
Lonza suggested a minimum purchase of 459 metric tons (“MT”) over a two-year period. Fry’s
They have suggested a minimum purchase of 459 MT over a 2 year period in
response to [FFCC’s] proposal for 100% of their North American demand over a 3
year period. [Luggen] provided a forecast usage of 1800 MT in 2009, 900 MT in
2010, and 800 MT in 2010.
The drop in volume is due to expected competition from generic manufacturers for
the final product. The actual quantity used depends heavily on the recycle rate at
Lonza's Riverside facility. The 459 MT represents the absolute minimum purchase
quantity assuming perfect recovery at Riverside.
Id. Fry’s notes state that he and Allgeier required “a few days to think about this counter
proposal before [FFCC] need to respond,” and the participants agreed to meet again on July 31,
In an e-mail message to Luggen, dated July 29, 2008, Allgeier wrote:
If we can agree that you can commit to the volumes of 1,000 MT for 2009, 700 MT
for 2010 and 300 MT for 2011, we an offer you the price of $1.38 per pound . . .
delivered to the Riverside site. These volumes will allow us to go forward with the
continuous manufacturing operation and allow for flexibility for additional needs if
required by changes in your recycling operation. I look forward to talking with you
on Thursday about these changes.
Plf.’s Ex. #2, Allgeier Dep., attached Ex. #3.
Luggen reported to Dolan and Schauble that FFCC needed a commitment for
approximately 1700 metric tons of DEM, in total, to justify investing in a new plant for DEM
production. Luggen also noted that Lonza’s requirements from April 2009 through June 2010
were estimated at only 900 metric tons. See Plf’s Ex. #3, Dolan Dep, attached Ex. #32.
On July 30, 2008, FFCC sent Lonza a draft letter of intent, dated July 29, 2008, which
included the following statement under the heading Long Term Supply Strategy: “ Lonza agrees
to purchase DEM from [FFCC] at the following volumes: 1,000 [MT] tons in 2009, 80% of its
worldwide demand for 2010 and 80% of its worldwide demand for 2011.”3 Plf’s Ex. #1 (Fry
Dep), attached Ex. #7. The draft LOI provided an initial price of $1.38 per pound or $3.04 per
kilogram for “1,000 [MT] of annual volume,” but it also stated that the parties would negotiate
for “annual volumes that are less than or that exceed the 1,000 [MT].” Id.
On July 31, 2008, Luggen, Allgeier, and Fry held a teleconference. According to
meeting notes prepared by Fry, Luggen indicated that Lonza agreed in principle with the first
draft letter of intent, but he wanted more detail concerning a price/volume curve. Fry’s notes
state: “Lonza is particularly interested in FFCC’s thoughts around pricing at annual volumes less
than 1,000 MT/year. [Allgeier and Fry] committed to providing [Luggen] a proposed
price/volume curve by Monday, August 4.” Plf’s Ex. #1, Fry Dep., attached Ex. #8. FFCC
provided a second draft letter of intent dated August 1, 2008, which included a price/volume
chart that provided prices per pound and kilogram based on annual purchases of (1) more than
1250 MT, (2) 1,000 to 1250 MT, (3) 700 to 1,000 MT, (4) 400 to 700 MT, and (5) less than 400
MT. See id.
On August 8, 2008, Luggen and Allgeier conferred by telephone, and Luggen stated that
Lonza’s estimated demand for 2009, 2010, and 2011 was only 400 to 500 metric tons. Meeting
notes prepared by Allgeier state that there is “an upside” because “they have in the past had
difficulty with their recycle process and have had to purchase up to 120 MT per month when the
recycle process was not working as well.” Plf’s Ex. #2, attached Ex. #5. Allgeier’s notes
conclude: “Although this seems like a step backward for us, I believe that we will be selling
The draft letter of intent also included a section titled “Bridge Strategy” that provided a
plan for FFCC to store DEM that Lonza purchased from Eastman. See Plf’s Ex. #1, Fry Dep.,
attached Ex. #7.
between 500 and 700 MT next year and 500 to 600 MT in 2010 and 400 in 2011. This seems
more reasonable since they will be reducing the volume of product they are making as the patent
expires and they work on keeping the recycling process functioning at the current level.” Id.
Regarding his reference to the expiration of a patent, Allgeier explained in deposition that
Luggen reported that Merck’s patent for TTL would be expiring, which would reduce Lonza’s
DEM requirements. See Plf’s Ex. #2, Allgeier Dep. at 62-64.
On August 25, 2008, FFCC and Lonza representatives signed a letter of intent (“LOI”).
See Compl., Ex. B. Under the heading “Purpose,” the LOI provided:
Based upon our discussions concerning the storage and supply of [DEM] conducted
since May 2008 and the information we have exchanged, we are entering into this
letter of Intent in order to develop an Agreement under which [FFCC] will store
purchased DEM for [Lonza] and will additionally supply FFCC-manufactured
DEM to Lonza in accordance with Lonza's specifications far the product.
This Letter of Intent contemplates that the parties will negotiate and execute a
definitive supply agreement (the "Agreement") on or before October 1, 2008. It is
the intent of the parties to meet to begin preparation of the Agreement by August 31,
This Letter of Intent is intended to confirm our understanding of the principal terms
and conditions of the transaction and our mutual willingness to proceed in good faith
to work toward the execution of a definitive Agreement consistent with these terms.
Id. Under the heading “Bridge Strategy,” the LOI set forth terms under which Lonza would rent
tanks located at FFCC’s Batesville facility for the storage of DEM, and under the heading “Long
Term Supply Strategy,” the LOI provided:
FFCC agrees to configure and modify existing manufacturing equipment to a state
necessary to produce DEM to the quality that meets the specifications outlined in
Lonza agrees to purchase DEM from FFCC at the following volumes: 1,000 metric
tons in 2009, 80% of its worldwide demand for 2010 and 80% of its worldwide
demand for 2011. Lonza estimates that the expected DEM usage in 2009 is 1800
metric tons, and 900 metric tons in 2010 followed by 800 metric tons in 2011.
Like the second draft letter of intent dated August 1, 2009, the executed LOI set forth an initial
price per pound or kilogram for 1,000 MT tons of annual volume, but it also provided a
price/volume chart for prices based on annual purchases of (1) more than 1250 MT, (2) 1,000 to
1250 MT, (3) 700 to 1,000 MT, (4) 400 to 700 MT, and (5) less than 400 MT. See id.
The LOI also provided: “FFCC and Lonza agree to develop a mutually acceptable
formula that allows quarterly adjustments of the price based on raw material prices and changes
in freight charges. Such formula will be documented in the Agreement.” Id. Additionally, the
LOI set April 1, 2009 as a “best-efforts” start up date and set forth delivery and payment terms.
After the parties executed the LOI, Luggen and Fry continued negotiations for a longterm supply agreement. In September 2008, FFCC prepared and delivered to Lonza the first
draft of long-term supply agreement. See Def’s Ex. #4, Allgeier Dep. at 70. Unlike the LOI, the
first draft provided start and end dates for an initial one-year term and stated that the agreement
would continue year-to-year, subject to termination by either party upon 90-days written notice.
Def’s Ex. #10. Additionally, the first draft introduced terms not included in the LOI–such as
“minium percentage required” and “maximum annual quantity limit.” Id. Under the new terms,
Lonza would purchase and FFCC would supply a minimum of 80% of Lonza’s annual DEM
requirements during the term of the contract, but FFCC would not be obligated to supply more
than 3.5 million pounds of DEM during a calendar year. Id.
In November 2008, Luggen sent Allgeier an e-mail message stating: “Price formula:
Concept is ok, but details have to be discussed (units, what is base . . . ).” Def’s Ex. 24. Luggen
also sent a revised draft agreement that utilized Lonza’s template for a “raw material supply
agreement.” See id., see also Plf’s Ex. #1, Fry Dep. at 123-124.
The parties continued
negotiating terms and conditions that would govern their long-term supply agreement, and they
disagreed about a number of items. See Plf’s Ex. #1, Fry Dep. at 126(“We had [discussions]
because we didn’t agree with these–all of these terms, and they were different than our terms and
conditions, which we provided to Lonza, and we wanted to work out an acceptable remedy to
On December 15, 2008, Allgeier sent a revised draft agreement to Luggen, along with
an email message stating: “I have attached the contract that you provided for review. As you
will [see] we have marked it up. The major changes were in the terms and conditions section
which we attempted to melt your requirements with ours.” Def’s Ex. #25. In deposition, Fry
acknowledged that as of December 15, 2008, the parties were still attempting to agree to a
formula for quarterly price adjustments. See Plf’s Ex. #1, Fry Dep. at 133.
On December 29, 2008, Luggen responded to Allgeier’s December 15 draft, stating: “To
be honest, I was quite ‘surprised’ how much you’ve extended it. I’ve added some terms that I
consider as reasonable . . . . Before we invest a lot of work in this draft, I suggest we have a
phone call to get a common understanding on the purpose of this agreement and decide on
format afterwards.” Plf’s Ex. #1, Fry Dep., attached Ex. #13.
On February 13, 2009, Allgeier sent Luggen an updated draft agreement, along with an
email message stating: “We have tried to make the contract as simple as possible. But with the
number of people who have input [it is difficult to keep it simple].” Plf’s Ex. #1, Allgeier Dep.
at 86 and attached Ex. #7.
On February 23, 2009, Fry sent Lonza a sixth draft of the supply agreement, which
contained several terms and clauses that were not referenced in the LOI, including compliance
with laws, acceptance and rejection, taxes, intellectual property, limitation and liability and
warranties, force majeure, confidentiality, product stewardship, and more. See Plf’s Ex. #1,
Allgeier Dep., attached Ex. #9.
In deposition, Fry recalled that by February 2009, he was “starting to get nervous.”
Def.’s Ex. #6, Fry Dep. at 142. He testified: “It’s just getting close to the time when the [DEM]
plant would become operational, and we didn’t have a supply agreement in place. We were still
working on the agreement we had with the letter of intent.” Id.
On April 27, 2009, Allgeier e-mailed Luggen, stating: “[Your group at Riverside is
beginning to take the DEM purchased from Eastman and stored at our site. I believe it would be
in everyone’s best interest to have a contract in place for Lonza’s demand. Could you revise the
contract to meet your needs and return it so we can work it through our legal organization.”
Def’s Ex. #32.
Luggen responded to Allgeier on April 29, 2009, stating: “Sorry for my late response.
The reason is that we are really struggling to find a good solution. One reason is the legal
framework of the contract and the other is the economic situation. Our customer [is] optimizing
[its] inventory and therefore we will produce less material than we thought. For a fair
discussion, I would like to have a reliable forecast, so that we do not discuss about virtual figures
and face the reality. I [will] try to come up with a new forecast [by] the end of the week.” Id.
In reply, Allgeier offered to visit Riverside and work with Luggen to complete the contract.
Def’s Ex. #4, Allgeier Dep. at 99, Def’s Ex. #33.
According to Allgeier’s notes from a telephone conference held June 3, 2009, Luggen
informed Allgeier that Lonza’s demand for DEM in 2009 dropped to 200 to 250 MT because
Lonza’s DEM recovery rate had improved and because Merck was ordering less TTL than
expected. See Def’s Ex. #34. Allgeier asked Luggen to give him his “best guess” as to Lonza’s
DEM demand for 2010 and 2011, and Luggen replied “700 MT . . . if nothing changes.” Id.
Allgeier wrote: “I told him it was important to have a contract in place to protect Lonza from not
having DEM available. He understands the need to have a contract in place and will send me a
revised contract reflecting the change in demand next week.” Id.
In July 2009, Lonza communicated to FFCC that it wanted to purchase 60 MT of DEM,
and it requested a purchase price.
In an email message to other FFCC personnel, Fry stated:
“Lonza wants to spot buy 60 MT (3 truckloads) of DEM and has requested a price. They also
requested the lowest volume at which we would offer ‘contract’ pricing.” Def’s Ex. #36. FFCC
quoted Lonza a price of $1.55 per pound, which varied from the price $1.48 per pound set forth
in the LOI for annual volumes less than 400 MT. Fry explained in deposition that he did not
quote a price based on the LOI because the draft supply agreement was “fallow” and laying
dormant. See Def’s Ex. #6, Fry Dep at 156.
In 2010, Lonza made another “spot” purchase from FFCC for 79 MT of DEM. At some
point, Merck withdrew its business from Lonza, and Lonza sold the Riverside facility on
November 2, 2010.
Count I - Breach of Express Contract
FFCC contends that the LOI signed by the parties on August 25, 2008 constitutes a “valid
and binding contract for Lonza to purchase 1,000 metric tons of FFCC manufactured DEM from
FFCC in 2009 per the price structure set forth therein.” Compl., ¶ 17. FFCC further alleges that
Lonza only purchased 60 metric tons of FFCC-produced DEM in 2009, thereby breaching the
Lonza maintains that the LOI was no more than an agreement to negotiate a future longterm supply contract. According to Lonza, the undisputed facts demonstrate that the parties
never had a meeting of the minds regarding all terms of a long-term supply agreement, thus the
requirement of mutual assent is lacking.
Under Arkansas law,4 the essential elements of a contract are (1) competent parties, (2)
subject matter, (3) legal consideration, (4) mutual agreement, and (5) mutual obligations. City of
Dardanelle v. City of Russellville, 372 Ark. 486, 490-491, 277 S.W.3d 562, 566 (2008)(citing
Williamson v. Sanofi Winthrop Phars., 347 Ark. 89, 60 S.W.3d 428 (2001)). The Supreme Court
of Arkansas has articulated two principles that govern the determination of whether parties
entered a valid contract: (1) a court cannot make a contract for the parties but can only construe
and enforce the contract that they have made; and if there is no meeting of the minds, there is no
contract; and (2) to make a contract, there must be a meeting of the minds as to all terms, using
The parties do not specifically address which state’s law governs the substantive issues
in this case, but they cite Arkansas law to support their arguments. When federal jurisdiction is
based on diversity of citizenship, a federal court looks to the choice-of-law principles of the
forum state–in this case Arkansas--and applies those principles as the forum state would.
Simpson v. Liberty Mut. Ins. Co., 28 F.3d 763, 764 (8th Cir. 1994). In contract actions, when an
agreement does not specify the law to be applied, Arkansas Courts have applied the “significant
contacts” test, which requires an inquiry into the nature and quantity of each state’s contacts with
the transaction at issue. Fuller v. Hartford Life Ins. Co., 281 F.3d 704, 706 (8th Cir. 2002);
Southern Farm Bureau Casualty Ins. Co. V. Craven, 79 Ark. App. 423, 89 S.W.3d 369 (2002).
Arkansas and Pennsylvania appear to be the only states with a connection to this case, and the
Court has insufficient information to determine which state has the most significant contacts
with the transactions at issue.
objective indicators. See Williamson, 347 Ark. at 98, 60 S.W.3d at 434(citing Crain Industries,
Inc. v. Cass, 305 Ark. 566, 810 S.W.2d 910 (1991)). Determining whether parties had a meeting
of the minds requires individual inquiry into each party’s understanding of the terms of the
alleged contract, using an objective standard. See Williamson, 347 Ark. at 98-99, 60 S.W.3d at
In Arkansas Beverage Co. v. Dr. Pepper Bottling Co. of Little Rock, 249 Ark. 752. 461
S.W.2d 571 (1971), the Supreme Court of Arkansas cited governing law and factors that should
be considered in determining whether a definite contract has been entered:
If the party sought to be charged intended to close a contract prior to the formal
signing of a written draft, or if he signified such an intention to the other party, he
will be bound by the contract actually made, though the signing of the written draft
be omitted. If, on the other hand, such party neither had nor signified such an
intention to close the contract until it was fully expressed in a written instrument,
and attested by signatures, then he will not be bound until the signatures are affixed.
The expression of the idea may be attempted in other words: If the written draft is
viewed by the parties merely as a convenient memorial or record of their previous
contract, its absence does not affect the binding force of the contract. If, however, it
is viewed as the consummation of the negotiation, there is no contract until the
written draft is finally signed.
In determining which view is entertained in any particular case, several
circumstances may be helpful, as whether the contract is of that class which are
usually found to be in writing, whether it is of such nature as to need a formal writing
for its full expression, whether it has few or many details, whether the amount
involved is large or small, whether it is a common or unusual contract, whether the
negotiations themselves indicate that a written draft is contemplated as the final
conclusion of the negotiations. If a written draft is proposed, suggested, or referred
to during the negotiations, it is some evidence that the parties intended it to be the
final closing of the contract.
Arkansas Beverage Co, 249 Ark. at 762-763, 461 S.W.2d at 576(citing American Bentonite
Corporation v. Clark Equipment Co., 43 F.2d 392 (D.C. Mich. 1928)(quoting Mississippi
Steamship Co. v. Swift, 86 Me. 248, 29 A. 1063, 1066 (1894)).
The crucial question in this case is whether the parties intended the LOI to serve as an
agreement to negotiate a future, long-term supply contract or whether they intended the LOI as a
long-term supply contract that would be memorialized in a more formal agreement. The express
language of the LOI states that the parties contemplated further discussions before the execution
of a “definitive” supply agreement. And under the heading “Purpose,” the LOI states that the
parties “are entering into this [LOI] in order to develop an Agreement under which [FFCC] will
store purchased DEM for [Lonza] and will additionally supply FFCC manufactured DEM to
Lonza . . . ” Compl., Ex. B. Additionally, the LOI states that the document “is intended to
confirm our understanding of the principle terms and conditions of the transaction and our
mutual willingness to proceed in good faith to work toward the execution of a definitive
Agreement consistent with those terms.” Id. The language of the LOI indicates that the parties
intended it as an agreement to negotiate a future contract.
Under the heading “Long Term Supply Strategy,” the LOI states that Lonza agrees to
purchase 1,000 MT of DEM from FFCC in 2009. However, the LOI contains other statements
that suggest Lonza retained the option of purchasing less than 1,000 MT of DEM in 2009.
Specifically, the LOI provides an initial price of $1.39 per pound or $3.04 per kilogram for 1,000
MT “of annual volume,” but it also contains a price/volume chart containing prices for “annual
volumes” less then 1,000 MT.
FFCC contends that the LOI contained all essential, material terms needed for an
enforceable contract, and it set forth a procedure for finalizing “some auxiliary terms.”
However, the LOI states that the parties would develop a mutually acceptable formula for
quarterly price adjustments based on raw material prices and changes in freight charges that
would be “documented in the Agreement.” Id. FFCC argues that the unresolved priceadjustment formula is of no consequence because the LOI provides “an objectively
ascertainable figure with set parameters.” But the LOI is void of any index for determining
values or quantities necessary for a price-adjustment formula, and it specifically reserves the
development of such a formula for future negotiations.
In November 2008, the parties were still attempting to agree on a price- adjustment
formula. See Def’s Ex. #24 (Luggen e-mail). According to Fry, negotiations went “back and
forth,” and “[w]ell into the negotiation, . . . Luggen asked some questions . . . and we recognized
that the formula contemplated would not work properly, and we subsequently made changes to it
during the negotiations.” Def.’s Ex. #6, Fry Dep. at 121-122. Although the parties may have
reached an agreement in principle regarding the concept of a price adjustment formula, the
undisputed evidence shows that when they signed the LOI, they had not reached a definitive
agreement. Because the parties had no agreement regarding a mechanism for determining price,
the LOI cannot constitute a contract. See Hunt v. McIlroy Bank and Trust, 2 Ark. App. 87, 90,
616 S.W.2d 759, 761 (Ark. App. 1981)(“It is well settled that in order to make a contract there
must be a meeting of the minds as to all terms.”).
The parties’ actions taken after they signed the LOI provide further evidence that they did
not intend that preliminary agreement to serve as a binding contract. For months, the parties
endeavored to negotiate a definitive long-term supply agreement, and they produced six draft
agreements that included substantive terms that were absent from the LOI. The new and
additional terms included automatic renewal and termination clauses, and the first draft required
that Lonza would purchase and FFCC would supply a minimum of 80% of Lonza’s annual
DEM requirements. See Def's Ex. #10.
Fry recalls that the new terms arose “through
discussions back and forth between the companies about how much material was contemplated
that Lonza would need.” Def’s Ex. #6, Fry Dep. at 119; see also Def’s Ex. #4, Allgeier Dep. at
73-74. According to Fry, such terms “are open to negotiation or routinely negotiated in the
course of completing a supply agreement.” Id. at 120.
FFCC argues that Lonza’s internal communications following execution of the LOI
demonstrate Lonza’s clear intention and admission that the LOI constituted a contract,
commitment, and promise. On June 2, 2009 Luggen sent a e-mail message to other Lonza
employees, stating: “I’m still struggling with DEM for TTL, because last year, we promised a far
too large quantity to FFCC (at least 1,000 mt/a) and now we are using much less.” Plf’s Ex. #4,
Dolan Dep, attached Ex. #44. Under Arkansas law, the formation of a contract requires a
meeting of the minds on all terms, using objective indicators, independent of the subjective
opinions or understanding of the parties. See Ward v. Williams 354 Ark. 168, 180, 118 S.W.3d
513, 520 (2003)(“Indeed, this court made it clear more than a decade ago that though the phrase
‘meeting of the minds’ may have been used in our decisions, we meant objective indicators of
agreement and not subjective opinions.”). Mutual agreement or a meeting of the minds is not
determined by the subjective beliefs or secret intentions of the parties, but by their expressed or
manifested intentions. Here, the parties’ continued negotiations regarding the terms of a longterm supply contract revealed that they did not intend the LOI to serve as binding agreement.
FFCC argues that the parties partially performed the LOI–specifically terms set forth
under the bridge strategy, which provided that FFCC would store DEM that Lonza had
purchased from Eastman. FFCC contends that the parties’ “partial performance” shows that they
intended to be bound by the LOI.
The LOI segregates paragraphs entitled “Bridge Strategy” and “Long Term Supply
Strategy,” and the terms of the separate strategies share nothing in common. The parties’
conduct with respect to the storage of DEM that Lonza purchased from Eastman simply provides
no basis for finding that they agreed to terms of a long-term supply agreement. Furthermore, the
parties’ conduct with respect to DEM sales indicates the absence of a long-term supply
agreement. It is undisputed that in July 2009, Lonza requested to purchase 60 MT of DEM, and
FFCC quoted a price higher than the price provided in the LOI.
FFCC argues that the question of whether Lonza acted in good faith in negotiating a
definitive supply agreement “should at the very least create a fact question on Lonza’s breach
mandating denial of summary judgment.” Plf’s Resp. at 10. FFCC reports that in July and
August 2008, when the parties were negotiating the terms of the LOI, Lonza was pursuing other
DEM suppliers. FFCC also presents a copies of e-mail communications among Lonza
representatives that indicate a plan to “squeeze” as much out of FFCC and Eastman as possible
and eventually let FFCC know they would be bidding against someone else.5
In its complaint, FFCC charges that Lonza breached a supply contract that required it to
purchase 1,000 MT of DEM, it does not assert a claim that Lonza breached an agreement to use
FFCC points to evidence that in June 2008, before the parties executed the LOI, Lonza
knew that FFCC required a commitment from Lonza before it would go forward with capital
expenditures necessary for the construction of a DEM production facility. FFCC also provides
copies of internal email messages among Lonza representatives in May and June 2008,
indicating that Lonza purposefully gave FFCC vague information regarding the quantity of DEM
it required in order to keep FFCC “hot” and “engaged.”
best efforts or to negotiate in good faith toward a definitive supply agreement. Even if FFCC
asserted such a claim, and assuming that breach of an agreement to negotiate in good faith is
actionable under Arkansas law,6 the LOI’s reference to the parties’ “mutual willingness to
proceed in good faith to work toward the execution of a definitive Agreement,” is simply too
vague to constitute a legally binding agreement. The LOI contains no language setting forth the
parameters of a duty to negotiate in good faith, nor does it preclude Lonza from considering
other DEM suppliers during negotiations. Without a specific standard or objective criteria by
which to measure good faith negotiations, the Court has no basis for determining the existence of
a breach or for giving an appropriate remedy. See City of Dardanelle v. City of Russellville, 372
Ark. 486, 491, 277 S.W.3d 562, 566 (2008)(holding that joint resolution to “cooperate” in
pursuit of funding for a sewer line was too vague to constitute a legally binding agreement).
Based on the undisputed evidence presented, the Court finds that no reasonable jury
could conclude that the parties’ August 25, 2008 LOI constitutes a binding, enforceable supply
contract. Accordingly, Lonza is entitled to summary judgment under Count I.
Count II - Breach of Implied Contract
FFCC alleges: “[I]n the event that it is found that an express contract was not formed
between FFCC and Lonza, Inc. for the supply and purchase of 1,000 metric tons of DEM in
An express contractual duty to negotiate in good faith is distinct from an implied duty of
good faith and fair dealing. Every contract imposes upon each party a duty of good faith and fair
dealing in its performance and enforcement, but the implied covenant of good faith and fair
dealing in the performance of an existing contract stems only from contractual obligations and
does not extend to pre-contractual negotiations. See Hodge v. First Nat. Bank in Osceola, 1994
WL 188860, *4 (Ark. App. May 4, 1994)(citations omitted).
2009, then an enforceable implied contract was formed for FFCC to supply and Lonza, Inc. to
purchase 1,000 metric tons of DEM based on the parties’ conduct and course of dealing . . . . ”
Compl., ¶ 27.
“A contract implied in fact does not describe a legal relationship different from that
created by an express contract.” Steed v. Busby, 268 Ark. 1, 7, 593 S.W.2d 34, 38 (1980)
(citations omitted). The elements required for a contract are identical whether they are
expressly stated or implied in fact. See K.C. Properties of N.W. Arkansas, Inc. v. Lowell Inv.
Partners, LLC, 373 Ark. 14, 28-29, 280 S.W.3d 1, 13 (2008)(citing 1 Williston, Contracts § 3
(3d ed.1957)). For reasons previously stated, the undisputed evidence regarding the parties’
conduct and course of dealing demonstrates that they did not intend that the LOI would serve as
a enforceable supply contract. Accordingly, Lonza is entitled to summary judgment on Count II.
Count III - Promissory Estoppel
FFCC asserts that it is “entitled under the doctrine of detrimental reliance and promissory
estoppel to recover its lost profits from Lonza’s . . . failure to abide by its agreement to purchase
1,000 metric tons of DEM.” Compl., ¶ 35.
“Under Arkansas law, promissory estoppel requires that the plaintiff clearly show four
elements: ‘(1) the making of a promise, (2) intent by the promisor that the promise be relied
upon, (3) reliance upon the promise by the promisee, and (4) injustice resulting from a refusal to
enforce the promise.’” Curtis Lumber Co., Inc. v. Louisiana Pacific Corp. 618 F.3d 762, 780
(8th Cir. 2010)(quoting In re Hilyard Drilling Co., 840 F.2d 596, 602 (8th Cir.1988)). “[T]he
party asserting estoppel must prove it strictly, there must be certainty to every intent, the facts
constituting it must not be taken by argument or inference, and nothing can be supplied by
intendment.” K.C. Props. of N.W. Ark., Inc. v. Lowell Inv. Partners, LLC, 373 Ark. 14, 280
S.W.3d 1, 14 (2008)(citing Ward v. Worthen Bank & Trust Co., 284 Ark. 355, 681 S.W.2d 365
Lonza asserts that FFCC is unable to show that Lonza made a promise to purchase 1,000
MT of DEM in 2009. A “promise” is “a manifestation of intention to act or refrain from acting
in a specified way, so made as to justify a promisee in understanding that a commitment has
been made.” RESTATEMENT (SECOND) OF CONTRACTS § 2 (1981); see also Fairpark, LLC v.
Healthcare Essentials, Inc., 2011 Ark. App. 146, 14 , — S.W.3d — (2011)(adopting
Restatement (Second) of Contracts § 2 definition of “promise” in connection with promissory
FFCC contends that by signing the LOI, Lonza promised to purchase 1,000 metric tons of
DEM from FFCC in 2009 and 80% of its DEM requirements in 2010 and 2011. But for reasons
previously explained, the parties’ LOI was a preliminary step toward the negotiation of a
definitive, long-term supply agreement; it simply cannot be construed as an assurance or promise
sufficient to give rise to an action based upon detrimental reliance or promissory estoppel. See
Bill & George Wilson, Inc. v. Southwest Dev. Co., No. CA-83-368, 1984 WL 1760 (Ark. Ct.
App., July 5, 1984)(holding that negotiations toward a final agreement could not be construed to
be assurances or promises sufficient to support an action for detrimental reliance or promissory
estoppel); see also 168th and Dodge, LP v. Rave Reviews Cinemas, LLC, 501 F.3d 945, 955 (8th
Cir. 2007)(applying Nebraska law and noting that promissory estoppel cannot be based on
preliminary negotiations and discussions or an agreement to negotiate the terms of a contract).
FFCC asserts: “Not only was the promise set forth in the LOI, but it was also
specifically stated in conversations and emails between FFCC and Lonza . . . . ” Plf’s Br. at 2021. The Court has reviewed material referenced in FFCC’s brief and statement of facts and finds
no instance where Lonza communicated to FFCC that it would purchase 1,000 MT or any
specific quantity of DEM. To the contrary, the evidence shows that FFCC knew that Lonza’s
DEM requirements were uncertain and depended upon Merck’s requirements for TTL and the
success of Lonza’s DEM recycling process.7 Furthermore, the evidence shows that FFCC did
not believe that it had a firm commitment from Lonza. On April 29, 2009, Allgeier sent Luggen
an email stating: “I believe it would be in everyone’s best interest to have a contract in place for
Lonza’s demand.” Def’s Ex. #32.
FFCC correctly notes that Lonza understood that it wanted a commitment before it
expended money on a DEM production facility. However, promissory estoppel is based upon a
promise which the promisor should reasonably expect to induce action or forbearance on the
party of the promissee. Arkansas law requires that facts constituting promissory estoppel must
not be taken by argument or inference and that nothing can be supplied by intendment, and
FFCC has failed to come forward with evidence that Lonza promised to purchase a specific
DEM. Accordingly, the Court finds that Lonza is entitled to summary judgment on Count III.
See Plf’s Ex. #3, Dolan Dep, attached Ex. #30 (acknowledging that the Lonza’s DEM
requirements depended heavily on the recycle rate at Lonza's Riverside facility); Def’s Ex. #6,
Fry Dep. at 63 (acknowledging that as of July 2008, Lonza’s DEM requirements were
uncertain); Def’s Ex. #4, Allgeier Dep. at 103 (acknowledging that Lonza required DEM solely
for a product it manufactured for Merck, which presented a risk to FFCC); Plf’s Ex. #2, Allgeier
Dep. at 62-63 and attached Ex. #5 (FFCC meeting notes dated August 8, 2008 stating Lonza’s
estimated annual demand for years 2009 through 2011 to be 400 to 500 MT and that FFCC
would be providing less product to Merck).
For the reasons stated, the Court finds that Defendant’s motion for summary judgment
(docket entry #52, filed under seal) should be and it is hereby GRANTED. Pursuant to the
judgment entered together with this order, this action is DISMISSED WITH PREJUDICE.
IT IS SO ORDERED THIS 13TH DAY OF SEPTEMBER, 2012.
/s/Susan Webber Wright
UNITED STATES DISTRICT JUDGE
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