Prime Finish, LLC v. ITW Deltar IPAC

Filing 180

MEMORANDUM OPINION AND ORDER: (1) ITW Deltar IPAC's 129 Motion for Partial Summary Judgment on Cameo's Claim for Actual Damages in Addition to Liquidated Damages is DENIED. (2) ITW Deltar IPAC's 130 Motion for Partial Summary Judgment on Calculation of Liquidated Damage's is GRANTED IN PART and DENIED IN PART consistent with the findings of this opinion. Signed by Judge Gregory F. VanTatenhove on May 5, 2017. (AWD) cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
LEXINGTON
PRIME FINISH, LLC,
Plaintiff,
and
CAMEO, LLC,
Intervenor Plaintiff,
V.
ITW DELTAR IPAC,
Defendant.

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Civil No. 5:08-cv-0438-GFVT

MEMORANDUM OPINION
&
ORDER

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The instant action was brought before federal court in 2008 after Defendant ITW Deltar
IPAC removed the claims of Plaintiff Prime Finish, LLC, from Bourbon Circuit Court. The
dispute arises out of a relatively uncomplicated “Product Supply Agreement” from May 26,
2005, whereby Prime Finish promised to paint interior automotive parts for ITW Deltar and ITW
Deltar agreed to provide car parts to be painted throughout a forty-eight month term. Prime
Finish specializes in painting and finishing plastic parts and ITW supplies car manufacturers
with these finished parts. Prime Finish underwent significant expansion to fulfill the volume of
painting required by ITW. Installation of this new and rather expensive paint line was only
possible due to a sizable capital investment by Cameo, LLC. Prime Finish then began painting
car parts for ITW Deltar and paying a royalty to Cameo for parts painted on the Cameo line but,
as in all contract disputes, something went wrong.

Eventually, ITW terminated the “Product Supply Agreement” before the forty-eight
month term had expired after complaining of Prime’s alleged insolvency and quality standard
issues with the painted materials. Prime then sued ITW for breach of contract and damages
including the early termination penalty that had been agreed to in the Product Supply Agreement.
Cameo intervened, arguing that any early termination penalty or other award paid to Prime was
actually owed to Cameo. Roughly during this same time, Prime and ITW entered into a mutual
settlement and release agreement and Judge Coffman granted summary judgment for ITW
against Cameo holding that Cameo lacked standing to sue. In the first of two appeals, the Sixth
Circuit reversed the district court’s ruling and found that Cameo did have standing to sue as an
intended creditor beneficiary of the supply agreement.
Following the Sixth Circuit’s ruling, counsel for Cameo withdrew. Cameo then missed
Court deadlines, was ordered to show cause for why the action should not be dismissed, and
upon an unsatisfactory response the action was dismissed with prejudice by Judge Coffman.
Following Judge Coffman’s retirement, the case was reassigned to Judge Van Tatenhove who,
upon a motion for reconsideration, denied the motion and upheld the dismissal. Following a
subsequent appeal, reversal, and remand by the Sixth Circuit, Cameo filed amended intervening
complaints. Now, on the eve of trial and nearly twelve years since the product supply agreement
was signed, ITW Deltar has filed a Motion for Partial Summary Judgment on Cameo’s Claim for
Actual Damages in Addition to Liquidated Damages [R. 129] and a Motion for Partial Summary
Judgment on Calculation of Liquidated Damages [R. 130]. After thoroughly reviewing the
Product Supply Agreement, attached affidavits, the record, and relevant case law, the Court
orders as follows: Defendant ITW Deltar IPAC’s Motion for Partial Summary Judgment
2

[R. 129] is DENIED and the Defendant’s Motion for Partial Summary Judgment [R. 130] is
GRANTED in PART and DENIED in PART.
I
There are many uncontested facts in this case. The Sixth Circuit has already determined
that Cameo has standing to sue as an “intended creditor beneficiary of the supply agreement.”
[R. 59 at 7.] But, the Court of Appeals refused to analyze what relief, if any, Cameo is entitled
to based upon the Supply Agreement. [Id. at 13.] Initially, Cameo and Prime entered into a
“Production Service Agreement” in which Cameo agreed to fund a new paint line for Prime and
Prime agreed to pay a 7% royalty to Cameo for all parts that were painted on the Cameo line.
[R. 129-2 at 2-3.] The agreement further instructed that “[a]ll ITW projects will be, by default,
quoted to run on the new line…” [R. 129-2 at 2.] On May 26, 2005, the very next day, Prime
and ITW entered into a “Product Supply Agreement” that had a four year term that “shall
commence on June 1st 2005, and shall continue for forty-eight months (48) following the start of
production (expected to be January 1, 2006).” [R. 129-4 at 2.]
The Product Supply Agreement establishes the parameters of the business relationship
between Prime and ITW. In the agreement, Prime notifies ITW that “Seller will be required to
add an additional paint line to its current facility” and that “Buyer [ITW] desires that Seller
increase its capacity in order to fully meet Buyer’s requirements and is willing to enter into this
output agreement in order for Seller to commit to the installation of an additional paint line…”
[R. 129-4 at 2.] The contract did not set exact numbers regarding the number of parts to be
painted, but “Exhibit A” to the contract provides an “Estimated Minimum Annual Revenue” that

3

sets revenue for 2006 at $1.186m and the following three years of the four year agreement to
yield $2.885m in minimum annual revenue. [R. 129-4 at 4.]
The day that production began is contested, but both parties agree that ITW terminated
the supply agreement on August 1, 2008. [R. 129-5.] On August 1, 2008, Doug Marciniak, the
Vice President and General Manager of ITW Deltar Body & Interior, sent a letter to Prime where
he “terminate[d] the Agreement under Sections 3.3 and 3.4 of the Product Supply Agreement.”
Mr. Marciniak believed that “[u]nder Section 3.3, an event of default has occurred because Prime
Finish is insolvent. An event of default has also occurred under Section 3.4 because Prime
Finish repeatedly and continually failed to meet the Quality Standard defined by the Boundary
Limits, despite ITW’s written notice more than four months ago and ITW’s exhaustive and
costly efforts to help Prime Finish remedy such problems.” [Id.] While the parties agree this
termination letter was sent by ITW to Prime Finish, Cameo argues that the termination was not
justified. [See R. 133 at 4-5.]
In the Product Supply Agreement “Section 3: Termination” allows for early termination
of the forty-eight month contract term upon a number of different events of default. [R. 129-4.]
While the contract allows for early termination in certain circumstances, “Exhibit B” to the
contract provides for a “Penalty for Early Termination of Contract” which states, “[i]f ITW
Deltar terminates its contract early, for any reason other than outlined in the exception below,
ITW Deltar will pay the following termination penalty.” [Id. at 4.] The sliding scale in Exhibit
B provides for decreasing penalties over each consecutive six-month period in the following
manner:

4

Month range where
contract is terminated
Damages in Millions
($USD)
[R. 129-4 at 4.]

0-6

7-12

13-18

19-24

25-30

31-36

37-42

$1m

$0.75

$0.625

$0.5

$0.375

$0.25

$0.125

This lawsuit began in 2008 when Prime brought suit against ITW for breach of the
Product Supply Agreement. Cameo’s initial intervening complaint was filed in 2009 and sought
a “Penalty Payment” of $375,000 for early termination of the contract from ITW Deltar. [R. 122 at 3.] In May, 2010, Prime and ITW entered into a “Mutual Settlement and Release”
agreement where ITW paid Prime $50,000 and Prime released all claims related to this case. [R.
129-6.] Cameo also entered into a “Settlement Agreement, Release and Covenant Not to Sue”
with Prime Finish but “[t]his Release recognizes that Cameo continues with its lawsuit against
ITW pursuant to Cameo’s claim of a right to recover any early termination penalty sum from
ITW under the terms of the Prime Finish – ITW Product Supply Agreement and its Exhibit B,
which was and is hereby assigned to Cameo.” [R. 133-2 at 3.] The Court then dismissed all
claims against ITW, but as discussed above, the Sixth Circuit reversed and remanded after
determining that Cameo had standing to sue. [See R. 59.]
In April, 2016, Cameo filed a “First Amended Intervening Complaint” that sought
damages due to ITW’s breach of the Prime Finish and ITW agreements. [R. 95] Cameo
maintained that it was “entitled to recover the ‘penalty’ pursuant to those agreements as
liquidated damages for ITW’s breach of those agreements.” [R. 95 at 2.] But, Cameo also states
that the Settlement Agreement between Cameo and Prime Finish [R. 133-2] provided an
“independent basis to recover the early termination penalty, separate and apart from its status as
an intended beneficiary of the ITW/Prime Finish agreements…” [R. 95 at 2.] In addition to the
5

early termination penalty, Cameo alleges damages from ITW’s breach that include “lost profits,
and expenditures incurred by Cameo in installing a paint line and equipment in Prime Finish’s
factory for use on ITW’s products.” [R. 95 at 1-2.] The Court allowed for Cameo to file a
“Second Amended Intervening Complaint by Cameo, LLC” which modified the demand by
seeking recovery of a $500,000 early termination penalty instead of the originally requested
$375,000. [R. 102-2.]
In ITW’s Motion for Partial Summary Judgment, the Defendant attached Cameo’s
discovery responses which specifically enumerate the damages sought by Plaintiff. Those
damages include: (1) $500,000, plus interest for the early termination penalty, (2) $846,193, plus
interest for lost royalties of 7% on the invoice price of painted parts as a result of the early
termination, (3) $381,604, plus interest, for lost sales commission of 3% on the invoiced parts,
and (4) $1,079,772, plus interest, as ITW’s alleged breach led to default on a loan that was
secured by the paint-line asset and that default resulted in legal possession of the paint line being
taken by Cameo’s creditor resulting in loss of use of the asset. [R. 129-1 at 4, R. 129-7 at 10.]
II
A
When sitting in diversity, a federal court applies the substantive law of the state in which
it sits. Hayes v. Equitable Energy Resources Co., 266 F.3d 560, 566 (6th Cir. 2001) (citing
Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)). However, when considering
summary judgment arguments, a federal court applies the standards of Federal Rule of Civil
Procedure 56 rather than Kentucky’s summary judgment standard as expressed in Steelvest, Inc.
v. Scansteel Serv. Ctr. Inc., 807 S.W.2d 476 (Ky. 1991). See Gafford v. Gen. Elec. Co., 997 F.2d
6

150, 165 (6th Cir. 1993). Under Rule 56, summary judgment is appropriate where the pleadings,
depositions, answers to interrogatories, and admissions on file, together with affidavits, if any,
show that there is no genuine issue as to any material fact and that the moving party is entitled to
judgment as a matter of law. See Fed. R. Civ. P. 56. A fact’s materiality is determined by the
substantive law, and a dispute is genuine if “the evidence is such that a reasonable jury could
return a verdict for the non-moving party.” Anderson v. Liberty Lobby, 477 U.S. 242, 248
(1986).
Summary judgment is inappropriate where there is a genuine conflict “in the evidence,
with affirmative support on both sides, and where the question is which witness to believe.”
Dawson v. Dorman, 528 F. App’x 450, 452 (6th Cir. 2013). “Credibility determinations, the
weighing of the evidence, and the drawing of legitimate inferences from the facts are jury
functions, not those of a judge. . . . The evidence of the non-movant is to be believed, and all
justifiable inferences are to be drawn in his favor.” Morales v. American Honda Motor Co., Inc.,
71 F.3d 531, 535 (6th Cir. 1995) (quoting Liberty Lobby, 477 U.S. at 255). The Court is under
no duty to “search the entire record to establish that it is bereft of a genuine issue of material
fact.” In re Morris, 260 F.3d 654, 655 (6th Cir. 2001). Rather, “the nonmoving party has an
affirmative duty to direct the court’s attention to those specific portions of the record upon which
it seeks to rely to create a genuine issue of material fact.” Id.
B
Defendant ITW seeks partial summary judgment, in two separate motions, on what are
essentially the nature and size of Plaintiff’s demand for damages. First, ITW contends that upon
early termination of the Supply Agreement, the sole remedy available to Defendant are the
7

liquidated early termination damages as delineated in Exhibit B to the Product Supply
Agreement signed by Prime Finish and ITW. [See R. 129-1 at 2.] ITW makes clear that “why”
the Supply Agreement was terminated early is a disputed factual matter but that the issue of
“what kind of damages Cameo may recover is a pure issue of law.” [Id.] Cameo argues that the
Early Termination Penalty “is not a true liquidated damages provision, so the case law holding
that a liquidated damages provision constitutes a party’s sole remedy for breach of contract does
not apply.” [R. 133 at 7.] Instead, Cameo argues that Kentucky law requires true liquidated
damages provisions to be triggered following a party’s breach. Plaintiff believes that since the
early termination penalty can be awarded without the Defendant’s breach, the penalty cannot be
a liquidated damages provision. [Id. at 8-9.] Cameo further argues that the contract is
ambiguous as to whether the parties intended the early termination penalty to “constitute a limit
on damages in the event of breach.” [R. 133 at 14.]
ITW also contends that the “start of production” date that establishes the commencement
of the forty-eight month term of the agreement, as well as calculations for the penalty assessed
under Exhibit B, should be measured by the start of “any work under the contract” and that this
work began in July 2005. [R. 130-1 at 1-2.] Pursuant to these findings, ITW argues that early
termination of the contract occurred 37 months later in August, 2008, resulting in a maximum
early termination penalty of $125,000. [Id.] Plaintiff Cameo disagrees and asserts that the start
of production was in September 2006 because the agreement considered “start of production” to
denote production on the newly installed Cameo paint line or that, in the alternative, “start of
production is an ambiguous term”. [R 134 at 6-8.]

8

C
1
ITW believes that Cameo’s possible recovery should be solely based upon the Exhibit B
penalty which serves as a provision for liquidated damages. [See R. 129.] Most relevant is the
product supply agreement’s section on Termination and Exhibit B itself, which provides a
penalty for early termination of the contract. “Section 3: Termination” of the Product Supply
Agreement states, in part:
Earlier termination may only occur upon the following events of default . . .
3. The other party ceases to do business, makes a composition or assignment for the
benefit of its creditors, makes a general arrangement with its creditors concerning any
extension or forgiveness of any of its secured debt, becomes bankrupt or insolvent,
suffers or seeks the appointment of a receiver to the whole or any material part of its
business, takes any action to liquidate or wind up the whole or any material part of its
business, is found subject to any provisions of any bankruptcy code concerning
involuntary bankruptcy or similar proceeding, or suffers a material adverse change in its
financial position such that payments hereunder may be affected or delayed by a creditor
or administrator of the business of the other party.
4. Seller fails to meet the Quality Standards defined by the Boundary Limits agreed
between the parties, after notice from Buyer, and after Buyer and Seller have taken all
reasonable steps required to resolve the breach, and fails to cure such default within 30
days after written notice of such default is sent to Seller;
[R. 129-4 at 3.] Early termination of the Contract is also addressed in “Exhibit B,” the section
titled “Penalty for Early Termination of Contract” which provides that, “If ITW Deltar
terminates the contract early, for any reason, other than outlined in the exception below, ITW
Deltar will pay the following termination penalty…” [R. 129-4.] Following the sliding penalty
scale that was fully detailed in the table above, Exhibit B provides an exception to the penalty for
early termination of the contract:

9

Exception: ITW Deltar may terminate the contract due to a serious, continuing Quality
or Delivery issue outlined in Section 3.4 of this agreement. If ITW Deltar IPAC’s
customer cancels any of the above programs or discontinues purchases from ITW, ITW
will not be liable for the Early Termination Penalty. However, ITW will attempt to
mitigate the potential loss of revenue to Prime Finish by actively attempting to source
replacement business to Prime Finish.
[R. 129-4 at 4.] ITW’s termination letter cites Section 3.4 as one of the reasons for early
termination of the contract, but, ITW admits that “the issue of why ITW terminated the Supply
Agreement is a disputed factual matter.” [R. 129-1 at 2.]
Taken together, it is possible that ITW would be permitted to terminate the contract early
pursuant to Section 3.1, 3.2, 3.3, or 3.5 of the Product Supply Agreement but still be required to
pay the penalty for early termination imposed by Exhibit B so long as the grounds for early
termination were not based on Section 3.4 or a customer cancellation. [See R. 129, R. 133 at 67.] Cameo alleges that this is a critical nuance, as it demonstrates that the penalty for early
termination in Exhibit B is not a liquidated damages provision— the penalty ranges in exhibit B
were not approximations of damages that would result from breach. [R. 133 at 7.] Accordingly,
Cameo believes that the penalty is not a liquidated damages provision and that the instant action
is distinguishable from case law regarding liquidated damages. Id.
In previous filings, counsel for Cameo has referred to the penalty as “liquidated
damages.” [R. 133 at 13; see, e.g. R. 89 at 6 (“Second . . . Cameo is entitled to recover the
penalty for early termination of that Agreement by ITW as liquidated damages.” See also R. 95
at 2; R. 107 at 2.] Plaintiff states that their arguments are not inconsistent and judicial estoppel is
inappropriate, as “Cameo has made perfectly clear to ITW . . . that it was seeking not only the
liquidated amount provided in Exhibit B as an early termination fee, but also its actual and

10

consequential damages flowing from ITW’s breach of the Agreement.” [R. 133 at 3.] Defendant
asserts that Cameo’s arguments are “internally inconsistent and illogical.” [R. 137 at 4.]
The jury will ultimately be tasked with determining whether the Plaintiff is entitled to
damages. Federal Rule of Civil Procedure 8(d) allows for inconsistent claims and alternative
statements of a claim. Fed. R. Civ. P. 8. Generally, judicial estoppel “prevents a party from
prevailing in one phase of a case on an argument and then relying on a contradictory argument to
prevail in another phase.” New Hampshire v. Maine, 532 U.S. 742, (2001) (quoting Pegram v.
Herdrich, 530 U.S. 211, 227 n. 8 (2000)). In the instant action, the issue of liquidated damages
has not yet been litigated and the previous inconsistent positions were not used to the Plaintiff’s
advantage in any material way. The Defendant’s concerns of double recovery will be addressed
through the use of jury instructions, see EEOC v. Waffle House, Inc., 534 U.S. 279, 297, 122
S.Ct. 754 (2002) (it “goes without saying that courts can and should preclude double recovery.”),
but Cameo is entitled to attempt recovery on both compensatory damages for the breach of
contract claim and the early termination fee. See Fed. R. Civ. P. 8.
2
Cameo cites to a number of cases from various state and federal courts that are merely
persuasive. [See R. 133 at 9-12.] These cases stand for the same general proposition that
termination fees, even those based upon predetermined formulas, are not liquidated damages
provisions or that when penalties are assessed but not tied to breach, the penalty has been
considered compensation rather than liquidated damages. [See id. at 10-11 (quoting Blank v.
Bordon, 524 P.2d 127 (Cal. App. 2015) (“Where a contract for a specified period of time permits
a party to terminate the agreement before its expiration in exchange for a lump-sum monetary
11

payment, the payment is considered merely an alternative to performance, and not a penalty”);
see also St. Jude Med., Inc. v. Medtronic, Inc., 536 N.W.2d 24, 28 (Minn. Ct. App. 1995)
(holding that, “implicit” in the three essential elements of a claim for liquidated damages “is the
breach of a contract.”)] ITW notes that none of these cited cases “interprets Kentucky law” and
that “alternative performance provisions are in lieu of, and not in addition to, actual damages.”
[R. 137 at 8.] ITW also presented an aggregate of similar persuasive out-of-state case law that
find termination provisions to be liquidated damage clauses, even when the termination
provisions are not triggered by breach of contract. [R. 137 at 9 (citing Hawk’s Cay Inv’rs, Ltd. v.
Brandy Marine of the Keys, Inc., 524 So. 2d 681, 683-84 (Fla. Dist. Ct. App. 1988) (holding that
when a party terminated the contract early, but did not breach the contract, the contract had a
valid liquidated damages clause that was not an unenforceable penalty.)] Both parties are
reminded that, while out-of-state case law is occasionally helpful, this court is better served by
briefing that focuses on mandatory authority.
Kentucky Courts have found that “[p]arties may, by contract, liquidate the damages to
which either of them shall be entitled for breach of covenant by the other. Taul v. Everet, 27 Ky.
10, 10 (1830). A more recent case explains that, “[t]he effect of a clause for stipulated damages
in a contract is to substitute the amount agreed upon as liquidated damages for the actual
damages resulting from breach of the contract…” Coca-Cola Bottling Works (Thomas) Inc. v.
Hazard Coca-Cola Bottling Works, Inc., 450 S.W.2d 515, 519 (Ky. 1970) (quoting 22 Am. Jur.
2d 321, Damages § 235.) Further, “[i]f a provision is construed to be one for liquidated damages
. . . recovery must be for that amount. No larger or smaller sum can be awarded even though the
actual loss may be greater or less.” Id.
12

While the Kentucky court’s haven’t stated as much, Kentucky case law has allowed for
“widely varying language [to] constitute valid liquidated damages clauses” and breach might not
be an essential triggering event for a valid liquidated damages clause. [R. 137 at 7 (citing
multiple Kentucky Courts of Appeals cases including Capital Holding v. Octagon Dev. Co., 757
S.W.2d 202, 203 (Ky. Ct. App. 1988) (finding a valid liquidated damages clause when a deposit,
that was non-refundable if the loan was not closed, was given “in consideration of the expenses
which Lender has incurred in considering and approving this proposed investment”); contra
Ramada Dev. Co. v. U. S. Fid. & Guar. Co., 626 F.2d 517, n. 11 (6th Cir. 1980) (the Sixth
Circuit decided a Michigan case which determined liquidated damages to be “those damages
which are reasonably ascertainable at the time of the breach, measurable by a fixed or
established external standard, or by a standard apparent from the documents upon which
plaintiffs base their claim”) (emphasis added); see also G.D. Deal Holdings, Inc. v. Cincinnati
Ins. Co., No. 1:05CV-3-R, 2007 WL 3306109, at *2 (W.D. Ky. Nov. 6, 2007) (adopting the
Ramada Dev. Co. definition of liquidated damages and applying that definition to Kentucky
law.)] At issue then, is whether the early termination penalty is a liquidated damages provision.
If the penalty is construed as a liquidated damage provision, Kentucky law would enforce the
provision and limit the Plaintiff’s possible recovery.
“A provision in a contract providing for liquidated damages will be enforced, provided it
is in actuality liquidated damages and not a penalty. If such a provision is in fact a penalty it will
not be enforced and the injured party will be entitled to recover the actual damages suffered.”
Patel v. Tuttle Properties, LLC, 392 S.W.3d 384, 387 (Ky. 2013) (quoting Fidelity & Deposit
Co. of Maryland v. Jones, 256 Ky. 181, 75 S.W.2d 1057, 1060 (1934). Exhibit B is titled
13

“Penalty for Early Termination of Contract” and the introductory sentence states that “If ITW
Deltar terminates its contract early . . . ITW Deltar will pay the following termination
penalty. . .” Even so, Cameo purposefully argues that the early termination penalty is not a
liquidated damages provision at all, therefore, it would be improper to categorize the fee as an
invalid liquidated damages provision that is unenforceable as a penalty. [R. 133 at 9.]
ITW asserts that the early termination penalty is a “thoughtful assessment by two
sophisticated business entities, negotiated at arm’s length, of what it would take to adequately
compensate Prime if the Agreement was terminated early, based on numerous business
considerations…” [R. 129 at 6.] Kentucky courts favor liquidated damages provisions. See
Uncle George Orphans Home, Inc. v. Landrum, 551 S.W.2d 582, 584 (Ky. Ct. App. 1977);
Coca-Cola Bottling Works (Thomas) Inc. v. Hazard Coca-Cola Bottling Works, Inc., 450 S.W.2d
515, 518 (Ky. 1970). ITW cites to Coca-Cola Bottling Works to support the proposition that
liquidation damages agreements are enforced and that, when contracts include valid liquidated
damages provisions, these provisions “establis[h] the upper limit of recovery.” Coca-Cola
Bottling Works (Thomas) Inc. v. Hazard Coca-Cola Bottling Works, Inc., 450 S.W.2d 515, 519
(Ky. 1970).
In Coca-Cola Bottling Works, the Plaintiff bottling corporation in Hazard sued one
defendant for breach of contract and others for conspiring to unlawfully induce the breach. Id. at
516. Polly “entered into a purchase agreement with Hazard” and agreed to pay $162,000 for
bottling rights. Id. at 517. Polly then delivered a check for $5,000 in escrow “as a guarantee of
the performance of this agreement which shall constitute liquidated damages for any failure to so

14

perform.” Id. at 517. The Kentucky Court of Appeals 1 found that this was a liquidated damages
provision, noted that the legislature had passed Ky. Rev. Stat. Ann. § 355.2-718 which allows for
liquidated damages in contracts, and that “courts favor liquidated damage provisions in
contracts.” Id. at 518 (quoting Maryland Casualty Co. v. Ballard County, 217 Ky. 343, 289
S.W. 316 (1926)). Once identified as a liquidated damage provision, the Court found that $5,000
“established the upper limit of recovery” for the breach of contract by Polly. Coca-Cola Bottling
Works (Thomas) Inc. v. Hazard Coca-Cola Bottling Works, Inc., 450 S.W.2d 515, 519 (Ky.
1970).
While it is true that Kentucky Courts enforce liquidated damage provisions, those
provisions establish upper limits for recovery, and they preclude plaintiffs from securing broader
damages, it is not clear whether the Exhibit B “Penalty for Early Termination of Contract” is a
liquidated damage provision. As referenced by the Kentucky Court of Appeals in Coca-Cola
Bottling Works, Ky. Rev. Stat. Ann. § 355.2-718 provides that
Damages for breach by either party may be liquidated in the agreement but only at
an amount which is reasonable in the light of the anticipated or actual harm caused by the
breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of
otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated
damages is void as a penalty.
KRS § 355.2-718 (1).
But, this very codification that allows for liquidated damages is qualified by Ky. Rev. Stat. Ann.
§ 355.2-719 (1)(b) which states, in part, “resort to a remedy as provided is optional unless the
remedy is expressly agreed to be exclusive, in which case it is the sole remedy.” 2 The Product

1

The Kentucky Court of Appeals was the highest Court in Kentucky until 1976.
The Sixth Circuit Court of Appeals discussed subsection (1)(b) and stated that “[t]he commentary to this section
adds that “[s]ubsection (1)(b) creates a presumption that clauses prescribing remedies are cumulative rather than

2

15

Supply Agreement’s early termination penalty is distinguishable from the $5,000 that served as a
guarantee of performance and “liquidated damages” in Coca-Cola Bottling Works. Unlike CocaCola Bottling Works, in the instant action there are four events of default that would allow ITW
to terminate the agreement, without breach, yet ITW would still be required to pay the early
termination penalty. [See R. 129-4 at 3-4.] Further, the language of Exhibit B forcefully
requires payment by ITW Deltar of the “termination penalty” if ITW Deltar chooses to terminate
“its contract early, for any reason…” other than the two provided in the exception. [Id. at 4.] It
does not seem as if the parties expressly agreed that Exhibit B would be the sole and exclusive
remedy since it is not necessarily predicated on the contract’s breach by ITW. See Ky. Rev. Stat.
Ann. § 355.2-719 (1)(b).
Cameo argues that “the contract is ambiguous” and that it is uncertain whether the
penalty for early termination is intended to be the exclusive remedy for breach. [R. 133 at 14.]
In Uncle George Orphans Home, Inc. v. Landrum, 551 S.W.2d 582, 584 (Ky. Ct. App. 1977),
the court found the contract for sale of realty to be ambiguous as to a liquidated damages
provision, therefore the trial court was permitted to consider parol testimony. 3 Id. at 584. ITW
cited this same case to support the proposition that “plaintiff could only recover $1,000 under the
liquidated damages provision of the contract, rather than allowing the plaintiff to prove actual
damages.” [R. 129 at 8.] Uncle George Orphans Home, Inc. suggests that the proper method for

exclusive. If the parties intend the term to describe the sole remedy under the contract, this must be clearly
expressed.” Island Creek Corp. v. Anker Energy Corp., 968 F.2d 1215 (6th Cir. 1992)
3
The option-contract stated: “If closing does not take place, then buyer’s deposit is forfeited.” The Kentucky Court
of Appeals found this language, in addition to parol evidence, was sufficient to confirm the party’s intent to liquidate
damages. Uncle George Orphans Home, Inc. v. Landrum, 551 S.W.2d 582, 584 (Ky. Ct. App. 1977)

16

interpreting contract ambiguity can be through consideration of parol evidence at the trial court
level.
In Island Creek Corp. v. Anker Energy Corp., 968 F.2d 1215 (6th Cir. 1992), Island
Creek agreed to purchase 10,000 tons of coal per week for fifty weeks from Anker Energy. Id. at
1215. Article XI in the agreement described a “Performance Bond” which provided for some
compensation for Island Creek in the event that Anker Energy failed to deliver 10,000 tons of
coal per week. 4 Id. Besides this Performance Bond, “[n]o other provision in the Agreement
addresses whether, or to what extent, a non-performing party may be liable for damages upon
breach. Id. The parties then disputed whether the bond was intended to fully compensate the
buyer in the event of a breach. Defendants, much like in the instant action, “counter that all
parties understood Article XI to be a liquidated-damages provision and that the bond set the
upper limit of defendant’s liability under the Agreement.” Island Creed Corp., 968 F.2d at 1215.
Island Creek attempted to demand full payment on the bond in the amount of $750,000
even though actual losses were more than $1.1 million. Upon review of the Defendant’s motion
for partial summary judgment the district court granted the motion and “concluded that Article
XI of the Agreement constituted a binding liquidated-damages clause limiting Island Creek’s
recovery. . .” to $229,631.92. Id. On appeal, the Sixth Circuit found that “[w]hile it is true,
under Kentucky common law, that interpretation of a contract is generally an issue of law . . . the
central purpose of contractual interpretation is to identify the parties’ intent at the time of the
contract formation.” Id. (referencing Wilcox v. Wilcox, 406 S.W.2d 152, 153 (Ky. 1966). But, in

4

The Performance Bond could be drawn upon by Island Creek in dollar amounts per ton of coal that was either not
delivered or was rejected due to unsatisfactory quality. Also, Island Creek could draw from the Bond when the
seller failed to deliver an “average of 10,000 tons per week for each four week period.” See Island Creek Corp. v.
Anker Energy Corp., 968 F.2d 1215 (6th Cir. 1992).

17

situations where the contract is ambiguous, “the court must determine the parties' intent from the
contract as a whole, and in doing so will consider the subject matter of the contract, the situation
of the parties and the conditions under which the contract was written.” Island Creek Corp. v.
Anker Energy Corp., 968 F.2d 1215 (6th Cir. 1992) (quoting Whitlow v. Whitlow, 267 S.W.2d
739, 740 (Ky.1954)). In instances where “the contract is open to more than one reasonable
interpretation, however, determination of the parties’ intent is for the trier of fact.” Id.
(referencing Cook United v. Waits, 512 S.W.2d 493, 495 (Ky. 1974)).
Identical to the finding of the Sixth Circuit in Island Creek, the text of the Product
Services Agreement, including the provisions from Section 3 Termination and Exhibit B’s
Penalty for Early Termination of Contract, is ambiguous as to whether the parties then
contracting intended Exhibit B to be a liquidated damages clause that should serve as the sole
remedy for early termination and breach. Much like Island Creek’s presentation of evidence to
the district court, Cameo has provided Testimony of Tim Stout, the former President of Prime
Finish, in which he represented that “Prime Finish intended Exhibit B to allow it to repay the
investment in the new paint if ITW terminated the contract early.” 5 [R. 133 at 16.] The Sixth
Circuit also found that there was an “apparent inconsistency between Kentucky statutory and
decisional law” because, in Coca-Cola Bottling Works (Thomas) v. Hazard Coca-Cola Bottling
Works, 450 S.W.2d 515 (Ky. 1970), the court “held that a liquidated-damages clause provided
the upper limit of recovery for the non-breaching party absent evidence that the contract
contained language to that effect.” Island Creek Corp. v. Anker Energy Corp., 968 F.2d 1215,

5
When asked about Exhibit B and the early termination penalty, Mr. Stout said “Well, paying back the investment
was really dependent on ITW and what they had told us they would do from a revenue perspective, and if they
terminated the contract ahead of schedule the intent was to be able to pay back the investment.” [R. 134-1 at 8.]

18

n. 4 (6th Cir. 1992). The Coca-Cola Bottling Works (Thomas) holding contravenes Kentucky
law, which requires contractual modification or limitation of remedies to be agreed to by the
parties in express terms. See Ky. Rev. Stat. Ann. § 355.2-719.
3
This testimony presented by Plaintiff suggests that, at the time Prime and ITW made this
contract, the provision was not intended to serve as the exclusive remedy for breach. Instead, the
provision was the mechanism by which Prime could cover the expense of installing a new paint
line that had been funded by Cameo. 6
The contract, therefore, is ambiguous. After looking to the four corners of the document,
it is impossible to determine whether the parties intended for the Penalty for Early Termination
to serve as liquidated damages. The contract does not state whether the penalty is the sole and
exclusive remedy for all breaches of contract or just for compensation following early
termination. GenCorp, Inc. v. Am. Int’t Underwriters, 178 F.3d 804, 819 (6th Cir. 1999) states
that “in the summary judgment context, the mere incantation of ‘ambiguity’ by the nonmovant
does not satisfy its burden under Rule 56. The nonmoving party must present evidence to
support a reasonable interpretation that differs from the moving party.” Id. Also, “[t]he
evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his
favor.” Morales v. American Honda Motor Co., Inc., 71 F.3d 531, 535 (6th Cir. 1995) (quoting
Liberty Lobby, 477 U.S. at 255). Here, besides legal arguments and the contract itself, the non-

6

It is appropriate to reference the “Modification Agreement” of November 7, 2005, [R. 129-3] made between Prime
Finish, LLC, and Cameo, LLC, whereby Prime agreed that “Any Penalty Payment received by Prime Finish
pursuant to Exhibit B of the Production Supply Agreement between Prime Finish and ITW Deltar IPAC dated
March 15, 2005 as a result of the failure to place the minimum orders required under Exhibit A of that Agreement
shall be paid to Cameo.”

19

movant provided deposition testimony by the President of Prime Finish, the contracting party,
which suggests Exhibit B was not an approximation by the parties for damages that would arise
from breach.
Both the Sixth Circuit and Kentucky Courts of Appeals agree that contract interpretation
is a matter of law to be conducted by the courts. See Journey Acquisition–II, L.P. v. EQT Prod.
Co., 830 F.3d 444, 452 (6th Cir. 2016) (finding that “[c]ontract interpretation in Kentucky “is
solely a matter of law for the courts”); Frear v. P.T.A. Indus., Inc., 103 S.W.3d 99, 105 (Ky.
2003); Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 94 S.W.3d 381, 385 (Ky. Ct. App. 2002)
(stating that “the interpretation of a contract, including determining whether a contract is
ambiguous, is a question of law for the courts…”). As stated above, this contract is ambiguous
because “its language is reasonably susceptible of different constructions.” Journey Acquisition–
II, L.P., 830 F.3d at 452 (quoting Blevins v. Riedling, 289 Ky. 335, 158 S.W.2d 646, 648 (1942)).
Courts are allowed to “consider parol and extrinsic evidence involving the circumstances
surrounding the execution of the contract, the subject matter of the contract, the objects to be
accomplished, and the conduct of the parties” when a contract is “ambiguous or silent on a vital
matter.” Cantrell Supply, Inc., 94 S.W.3d at 385.
“However, once a court determines that a contract is ambiguous, areas of dispute
concerning the extrinsic evidence are factual issues and construction of the contract become
subject to resolution by the fact-finder.” Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 94
S.W.3d 381, 385 (Ky. Ct. App. 2002) (referencing Cook United, Inc. v. Waits, Ky., 512 S.W.2d
493, 495 (1974)); see also Royal Ins. Co. of Am. v. Orient Overseas Container Line Ltd., 525
F.3d 409, 421–22 (6th Cir. 2008) (finding that “[i]f a contract contains ambiguities, it generally
20

becomes the task of the fact-finder to use extrinsic evidence to determine the intent of the
parties…” and recognizing that “the Fifth Circuit makes clear that when extrinsic evidence
creates a genuine issue of material fact as to the parties’ intent, the interpretation of the contract
becomes a matter of fact appropriately resolved by a jury.”) Therefore, the ambiguity in the
Product Supply Agreement, namely whether the parties intended the early termination penalty to
serve as liquidated damages, is a factual dispute that requires consideration of extrinsic evidence
and must be resolved by the fact-finder.
ITW distinguishes Island Creek by recognizing that the language of the performance
bond is not identical nor even similar to the penalty for early termination provision. But, any
contract provision will be highly factually dependent. [See R. 137 at 12.] The Defendant also
believes that Cameo has failed to raise sufficient affirmative evidence to create a genuine issue
of material fact. Cameo attempts to use a lack of testimony by Mr. Stouts to support the
proposition that the penalty provision was not intended to account for general damages from
breach. [See R. 133 at 16 (Mr. Stout “did not testify that the fee was intended by Prime Finish as
compensation for all damages…”)] Besides that limited and improper use of a witness’
deposition, it is true that the Plaintiff’s general proposition is supported by Mr. Stout’s
testimony. Mr. Stout understood the early termination penalty to be limited to compensation that
would pay for the new paint line’s expense. [See R. 134-1 at 8 (Mr. Stout testified, “If they
[ITW] terminated the contract ahead of schedule the intent was to be able to pay back the

21

investment” made by Cameo.)] More importantly, the contract itself is unclear as to whether the
provision represents liquidated damages and should be the exclusive remedy. 7
Summary judgment must be denied because there is a genuine issue of material fact. See
Fed. R. Civ. P. 56. The contract is ambiguous and the parties’ intent is unclear as to whether
Exhibit B’s Penalty for Early Termination of Contract was to serve as a liquidated damages
provision. It is possible, from the record, motions, filings, case law, and evidence that “a
reasonable jury could return a verdict for the non-moving party.” Anderson v. Liberty Lobby,
477 U.S. 242, 248 (1986). Since there is “affirmative support on both sides” and the question
may be “which witness to believe” as to the scope of this agreement, summary judgment is
inappropriate. Dawson v. Dorman, 528 F. App’x 450, 452 (6th Cir. 2013). This Court must
conclude that, like in Island Creek, the Intervenor Plaintiff Cameo has “raised a material issue of
fact as to whether the parties, at the time they entered into the Agreement, intended [Exhibit B]
to serve as a liquidated-damages provision.” Island Creek Corp. v. Anker Energy Corp., 968
F.2d 1215 (6th Cir. 1992). Accordingly, the Defendant ITW Deltar IPAC’s Motion for Partial
Summary Judgment on Cameo’s Claim for Actual Damages in Addition to Liquidated Damages
[R. 129] is DENIED.
D
1
Next, Defendant ITW Deltar IPAC moves for Partial Summary Judgment on Calculation
of Liquidated Damages. [R. 130]. ITW refers to the Exhibit B’s Penalty for Early Termination

7

See supra note 2.

22

of Contract as liquidated damages. The date of termination is uncontested because Doug
Marciniak, Vice President & General Manager of ITW Deltar Body & Interior sent a letter “Re:
Notice of Termination of Product Supply Agreement” to Mr. Timothy E. Stout, President of
Prime Finish, LLC, on August 1, 2008. [R. 130-6.] In this letter, ITW’s representative
terminated the Product Supply Agreement citing events of default under Section 3.3 and 3.4 of
the Product Supply Agreement. [Id.] Since Exhibit B establishes penalties for early termination
that decrease over the life of the contract, the date for the “start of production” must be known to
determine the proper penalty. This requires the court to determine “whether the term [start of
production] refers to the start of any production, or whether the term means, as Cameo argues,
the start of production only on the new paint line.” [R. 130 at 5.] The issue before the Court
now is a mixed question of law and fact.
2
The Product Supply Agreement between ITW Deltar IPAC and Prime Finish, LLC, was
entered into on May 26, 2005. [R. 130-3 at 2.] The agreement has a “term of four (4) years and
shall commence on June 1st, 2005, and shall continue for forty-eight months (48) following the
start of production (expected to be January 1, 2006), unless terminated sooner in accordance
with the provisions set forth below.” [Id.] Prime was hired by ITW to provide painting services
for “four separate vehicle programs: (1) the Camry 044L program; (2) the Tundra & Sequoia
180L program; (3) the Nissan L42A program; and (4) the Honda Pilot program.” [R. 130 at 2.]
Mr. Marciniak, Vice President & General Manager of ITW Deltar Body & Interior, asked in a
January 2, 2008, email “I need to know when we received our first production shipment of
Honda Pilot parts from Prime Finish.” [R. 130-5 at 3.] In response, Randy Baudry stated “I’m
23

showing the first receipt on the system as 07-26-05.” [Id. at 2.] ITW now moves for partial
summary judgment on interpretation of the Product Supply Agreement and asks the Court to rule
that July 26, 2005, was the “start of production.” [See R. 130 at 5.]
The parties do not contest the presence of a contract in this case, therefore the Court must
interpret the contract and the terms contained within it. See Frear v. P.T.A. Industries, Inc., 103
S.W.3d 99, 105 (Ky.2003) (“[T]he construction and interpretation of a contract, including
questions regarding ambiguity, are questions of law to be decided by the court”). First of all, it is
important to remember that courts should protect the freedom of individuals to voluntarily enter
into contractual agreements with others, and thus should not rewrite a contract for the parties
under the guise of construing it. Bennett v. Dudley, 391 S.W. 375, 376–77 (Ky.1965); see also
Zeitz v. Foley, 264 S.W.2d 267, 268 (Ky.1954) (“contracts voluntarily made between competent
persons are not to be set aside lightly,” for “the right of private contract is no small part of the
liberty of the citizen.”) Rather, the primary goal of the court should be “to effectuate the
intentions of the parties.” Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 94 S .W.3d 381, 384
(Ky.2002). “Any contract or agreement must be construed as a whole, giving effect to all parts
and every word in it if possible.” Id. at 384–85 (quoting City of Louisa v. Newland, 705 S.W.2d
916, 919 (Ky.1986)).
When interpreting a contract, courts must determine which parts, if any, are ambiguous
because the presence of ambiguity will direct the analysis. Frear v. P.T.A. Indus., Inc., 103
S.W.3d 99, 105–06 (Ky.2003). If there is no ambiguity, the court must strictly enforce the
contract's terms “by assigning language its ordinary meaning and without resort to extrinsic
evidence.” Frear, 103 S.W.3d at 106 (citing Hoheimer v. Hoheimer, 30 S.W.3d 176, 178
24

(Ky.2000)); Mounts v. Roberts, 388 S.W.2d 117, 119 (Ky.1965). When the language of the
contract is ambiguous, however, the court must try to determine the intention of the parties by
evaluating the contract “as a whole, and in doing so will consider the subject matter of the
contract, the situation of the parties and the conditions under which the contract was written.”
Frear, 103 S.W.3d at 106 (quoting Whitlow v. Whitlow, 267 S.W.2d 739, 740 (Ky.1954)). Thus,
when resolving ambiguous or uncertain contract provisions, the court may use extrinsic evidence
concerning the parties' intentions as well as “the circumstances surrounding execution of the
contract, the subject matter of the contract, the objects to be accomplished, and the conduct of
the parties.” Cantrell, 94 S.W.3d at 385; Teague v. Reid, 340 S.W.2d 235, 242 (Ky.1960). A
contract or a provision in a contract is ambiguous “if a reasonable person would find it
susceptible to different or inconsistent interpretations.” Cantrell, 94 S.W.3d at 385; Transport
Ins. Co. v. Ford, 886 S.W.2d 901, 905 (Ky.Ct.App.1994). But, as discussed above, “once a court
determines that a contract is ambiguous, areas of dispute concerning the extrinsic evidence are
factual issues and construction of the contract become subject to resolution by the fact-finder.”
Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 94 S.W.3d 381, 385 (Ky. Ct. App. 2002)
(referencing Cook United, Inc. v. Waits, Ky., 512 S.W.2d 493, 495 (1974))
The contract term is four years in length and commences on June 1st, 2005. [R.130-3 at
2.] The contract term also continues for forty-eight months following “the start of production
(expected to be January 1, 2006)…” [Id.] ITW suggests that the contract is unambiguous and
the plain and ordinary meaning of this phrase “start of production” should be used to interpret the
term. See Larkins v. Miller, 239 S.W.3d 112, 115 (Ky. Ct. App. 2007) (stating that courts should
“interpret the terms of [a] contract according to their plain and ordinary meaning”); [R. 130 at 6.]
25

By applying Webster’s Third New International Dictionary (2002) definitions of the words “start
of production,” a plain and ordinary understanding of this phrase may suggest commencement of
the contract term to be triggered when Prime Finish “begin[s] an activity or undertaking” of “the
act or process of producing” painted materials for ITW. [See Id.] But, literal interpretation of
the contract term is inadequate and fails to resolve the issue because “a reasonable person would
find it susceptible to different or inconsistent interpretations.” Cantrell, 94 S.W.3d at 385.
Therefore, the term “start of production” is ambiguous and the Court should turn to the document
“as a whole, and in doing so will consider the subject matter of the contract, the situation of the
parties and the conditions under which the contract was written.” Frear, 103 S.W.3d at 106
(quoting Whitlow v. Whitlow, 267 S.W.2d 739, 740 (Ky.1954))
In Section 1, “Purpose and Intent” of the Product Supply Agreement, the parties make
clear that “Seller will be investing in a new paint-line to meet Buyer’s requirements” and “Buyer
will award the Vehicle Programs specified in Exhibit A . . . that supports Seller’s investment.”
[R. 130-3 at 2.] These “above interests of Buyer and Seller are material provisions of this
Agreement.” Id. In the introductory statements to the contract, the parties recognize that “Seller
is a competent painter and decorator of interior automotive products with current capacity to
partially meet the requirements of Buyer, and desires to paint and decorate interior automotive
products supplied by Buyer to Seller.” Id. (emphasis added.) Also, “in order to fully supply
Buyer’s requirements, Seller will be required to add an additional paint line to its current
facility” and “Buyer desires that Seller increases its capacity in order to fully meet Buyer’s
requirements and is willing to enter into this output agreement in order for Seller to commit to
the installation of an additional paint line.” Id. Finally, the introductory statements conclude “in
26

consideration of the mutual covenants contained herein . . . Seller agrees to invest in a new paintline in order to meet the capacity required by buyer.” Id.
The contract itself shows ITW was aware of the paint-line expansion Prime required to
meet ITW’s full capacity, but also that Prime was already capable of “partially meet[ing] the
requirements of [ITW].” [R. 130-3 at 3.] The contract also states that the parties anticipate the
start of production to be January 1, 2006. “Exhibit A” sets the “Estimated Minimum Annual
Revenue” “which cumulatively provides an estimated minimum Sales revenue to Prime Finish at
the following levels in each of the 4 years of the contract.” [R. 130-3 at 4.] The “EST.
MINIMUM” figures provided are $1.186m for “2006” and $2.885m for 2007, 2008, and 2009.
Id. It is potentially significant that, while the dollar figures are “EST. MINUMUM” the years
are listed, without qualifier, as 2006, 2007, 2008, and 2009. Exhibit A then describes the four
programs that are anticipated for the Product Supply Agreement: (1) Camry 044L, (2) Tundra &
Sequoia 180L, (3) Nissan L42A, and (4) Honda Pilot. Id. at 4.
Plaintiff asks this Court to conclude that the “start of production” cannot be
triggered until units are painted using the new paint line funded by Cameo. This request goes too
far and must be denied. A finding of this nature would require the Court to rewrite material
provisions of the contract for the parties under the guise of construing it. Bennett v. Dudley, 391
S.W. 375, 376–77 (Ky.1965); see also Snowden v. City of Wilmore, 412 S.W.2d 195, 208 (Ky.
Ct. App. 2013) (holding that when “intentions are clearly stated in a written document, we have
no authority to add terms not included by the parties.”) The contract between Prime Finish and
Cameo has no relevance to any “meaning ascribed to ‘start of production’ under [Prime’s]
agreement with ITW.” [R. 134 at 11.]
27

Cameo and Prime entered into a separate agreement where Cameo was guaranteed a
royalty payment of 7% on all ITW programs, “which were contractually required to run on the
new paint line to be installed by Cameo.” [R. 134 at 4.] But this contractual obligation existed
between Cameo and Prime, not Prime and ITW. ITW was aware that Prime was incurring
expense to install an additional paint line, but ITW had no reason to know the details of a
financial agreement between Prime and a third party. By supplying Prime with parts to be
painted and paying for that service, ITW was fulfilling its contractual duty.
In Cameo’s discovery responses, Cameo was asked by ITW to admit that the Honda
program “began no later than July 2005.” [R. 130-4 at 2.] In response, Cameo objected and
stated:
Without waiving that objection, Cameo admits that the painting of Honda parts by Prime
Finish began no later than July 2005. Cameo denies, however, that the painting of these
parts was pursuant to the Product Supply Agreement, as the Honda program was not
painted on Cameo’s paint-line. Furthermore, start of production is defined in Prime
Finish’s Terms and Conditions (attached to all quotations to ITW) as ‘normal production
which we define as full release schedule.’
[R. 130-4 at 2-3.]
Cameo also attached a March 13, 2006, email from Tim Stout, President of Prime Finish, which
stated “Prime Finish made clear in its correspondence to ITW that it considered ‘normal
production’ as meaning full release schedule,” [R. 134 at 14-15] but in this same email Mr. Stout
states “PF made our first full production shipment on 2/20/2006.” [R. 134-4 (emphasis
added).] Cameo also argues that “[l]ow-volume shipments of painted products did not qualify as
full production.” [See R. 134 at 15, see also R. 134-5 at 2 (In a September 7, 2006, email Mr.
Stout stated that “Thirty (30) days of full production would equate to shipping 93K units. To
date, PF has shipped approximately 22K units, far below a full production number.”]
28

Under Kentucky law, courts use the doctrine of contemporaneous construction to
interpret clauses of contracts that are subject to more than one interpretation. A.L. Pickens Co.,
Inc. v. Youngstown Sheet & Tube Co., 650 F.2d 118, 120 (6th Cir.1981). According to that
doctrine, when determining the meaning of an ambiguous contract provision, “courts are
required to give great weight to the interpretation which the parties have placed upon an
ambiguous contract. The construction of the parties is best evidenced by their conduct with
respect to the agreement.” A.L. Pickens Co., Inc., 650 F.2d at 120 (quoting Billips v. Hughes,
259 S.W.2d 6, 7 (Ky.1953)). Thus, the Court must examine “the course of performance engaged
in by the parties to the contract.” Id. at 120.
It is critical to note that the Product Supply Agreement [R. 130-3] made between ITW
and Prime Finish is a legal document that is separate and distinct from the “Production Service
Agreement between Cameo, LLC & Prime Finish.” [R. 130-2.] Kentucky case law does instruct
Courts, when interpreting contract provisions, to consider “[t]he nature of the contract, its spirit
and purpose . . . .” Lake Bluff Orphanage v. Magill’s Ex’rs, 204 S.W.2d 224, 227 (Ky. 1947).
This Product Supply Agreement was not a financing arrangement where ITW was primarily
focused on supporting the expansion of a growing paint business. Rather, the Product Supply
Agreement was created so that ITW could receive a “dependable and high quality source for the
painting and decorating of interior automotive products” from Prime that would “fully supply
[ITW’s] requirements” under the contract. [R. 130-3 at 2.] The agreement was not formed, as
Cameo asserts, “for the express purpose of ensuring that Prime Finish could repay the investment
in the new paint line.” [R. 134 at 8.] Although, that certainly was a consideration made by ITW

29

and Prime in agreeing to a multi-year term, early termination penalty, and estimated minimum
annual revenue.
Looking to the “course of performance,” the Product Supply Agreement was signed May
26, 2005. [R. 130-3.] The start of production might, at the earliest, be triggered two months
later when Prime began a July 2005 “last minute takeover project” for the Honda Pilot that was
allegedly “not within the scope of the Product Supply Agreement.” At the latest, in response to
Randy Baudry (ITW), Tim Stout stated that “PF made our first full production shipment on
2/20/2006.” [R. 134-4.] Per Cameo’s discovery responses, Cameo received $97.72 in royalties
in January 2006 for a “fixture cell that provided a secondary painting operation for the Camry
044L program.” [R. 130-4 at 3.] Cameo states that this fixture cell was not “contemplated in the
Product Supply Agreement” between Prime and ITW. [Id.] The discovery response also
discloses, with a stated objection, that “start of production of the Toyota Camry automotive
program for ITW by Prime Finish began on or after February 1st 2006…” [Id. at 5.] Both the
Honda Pilot and Toyota Camry 044L program are listed in Exhibit A to the Product Supply
Agreement. [R. 130-3 at 4.]
3
Interpretation of a contract is a matter of law to be decided by the court. See Frear v.
P.T.A. Indus., Inc., 103 S.W.3d 99, 105 (Ky. 2003). In this contract, the term “start of
production” should be understood to mean the start of production by Prime Finish of ITW
painted products pursuant to the Product Supply Agreement made between Prime and ITW. [R.
129-4 at 2.] The start date should not be constrained by the additional, non-enumerated, qualifier
that production must be on the new cameo line. Interpreting the contract in this manner,
30

production began before the September 2006 utilization of the Cameo line for ITW projects.
[See R. 134 at 16.] The Court will grant the Defendant’s Motion for Partial Summary Judgment
on Calculation of Liquidated Damages, but only in part. Summary judgment is appropriate
where the pleadings, depositions, answers to interrogatories, and admissions on file, together
with affidavits, if any, show that there is no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56. By resolving the
question of law concerning contract interpretation, it is evident that the “start of production” was,
at the latest, in February 2006. [See R. 134-4, Tim Stout email to Randy Baudry, Supplier
Development Manager for ITW Deltar, stating “PF made our first full production shipment on
2/20/2006.”] Summary judgment is granted in part as to the latest possible date that production
began.
There are material factual disputes as to whether the “start of production” began in July
2005 or at a later time between January and February of 2006, because “production” is “a term of
art in the automotive industry.” [R. 134 at 13.] Mr. Stout defined the meaning of “production,”
in the automotive supply industry, as “producing parts at a level that’s consistent with normal . . .
volumes.” [R. 134 at 13.] Mr. Stout explained that industrial painting jobs for automotive parts
undergo a pre-production process known as “PPAP.” This pre-production phase would allow for
a series of small trial runs in a “multi-month process” that would initially “start with a few parts,
get to a couple hundred, and then run a real production trial which is supposed to simulate the
volume of a production, a normal production run.” [R. 134 at 12-12 (quoting 10-25-16
deposition of Tim Stout); see also 12-13-16 Deposition of Patrick Bowden (describing the steps
to secure product approval and noting that “Typically this would have all been done before the
31

start of production. However . . . sometimes it works out that way, and sometimes it does not”)
R. 134-1 at 15-16.] Deposition testimony from Nicholas Herbert-Jones, the co-founder of Prime
Finish and Founder of Cameo, suggested that Prime “started trials in January ‘06” for the Camry
044L program, but he “can’t recall when trials finished.” [R. 134-1 at 19; see also 10-20-16
deposition of Christy Claus (stating that “full production . . . ramp[s] up slowly. They might do
sporadic spot builds of a few hundred parts and then ramp up gradually to that full volume” R.
134-1 at 10.]
ITW argues that “start of production unambiguously means the beginning of Prime’s
work under the Supply Agreement.” [R. 136 at 9.] But, this statement glosses over the inherent
complexity of when “production” actually begins and whether the pre-production stage is
materially different or should be viewed differently for purposes of tolling a forty-eight month
contract term. Therefore, this factual finding must be left to the jury. See Cantrell Supply, Inc.
v. Liberty Mut. Ins. Co., 94 S.W.3d 381, 385 (Ky. Ct. App. 2002); Royal Ins. Co. of Am. v.
Orient Overseas Container Line Ltd., 525 F.3d 409, 421–22 (6th Cir. 2008). It is unclear from
the record, filings, and submitted documents when the pre-production phase ended and when the
“start of production” commenced. But, more than adequate evidence has been presented such
“that a reasonable jury could return a verdict for the non-moving party” as to the date when
production began. See Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986). Accordingly,
Defendant’s Motion for Partial Summary Judgment on Calculation of Liquidated Damages
[R. 130] is GRANTED in PART and DENIED in PART.

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III
Accordingly, for the reasons stated above and the Court being otherwise sufficiently advised, it is
hereby ORDERED as follows:
1. ITW Deltar IPAC’s Motion for Partial Summary Judgment on Cameo’s Claim for
Actual Damages in Addition to Liquidated Damages [R. 129] is DENIED; and
2. ITW Deltar IPAC’s Motion for Partial Summary Judgment on Calculation of
Liquidated Damages [R. 130] is GRANTED in PART and DENIED in PART
consistent with the findings of this opinion.
This the 5th day of May, 2017.

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