Hemlock Semiconductor Corporation v. Kyocera Corporation
Filing
61
ORDER Granting Plaintiff's 21 Motion to Dismiss Counterclaims, Dismissing Counterclaims, Granting Plaintiff's 22 Motion to Strike Japanese Antitrust Defense, Striking Japanese Antitrust Defense, Denying Without Prejudice Defendant' ;s 38 Motion for Partial Judgment on the Pleadings, Granting Plaintiff's 24 Motion to Quash Non-Party Subpoenas, and Scheduling Rule 16(b) Scheduling Conference. (Scheduling Conference set for 3/9/2016 at 04:00 PM before District Judge Thomas L. Ludington) Signed by District Judge Thomas L. Ludington. (Sian, M)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
NORTHERN DIVISION
HEMLOCK SEMICONDUTOR CORPORATION,
Plaintiff,
v
Case No. 15-cv-11236
Honorable Thomas L. Ludington
KYOCERA CORPORATION,
Defendant.
__________________________________________/
ORDER GRANTING PLAINTIFF’S MOTION TO DISMISS COUNTERCLAIMS,
DISMISSING COUNTERCLAIMS, GRANTING PLAINTIFF’S MOTION TO STRIKE
JAPANESE ANTITRUST DEFENSE, STRIKING JAPANESE ANTITRUST DEFENSE,
DENYING WITHOUT PREJUDICE DEFENDANT’S MOTION FOR PARTIAL
JUDGMENT ON THE PLEADINGS, GRANTING PLAINTIFF’S MOTION TO QUASH
NON-PARTY SUBPOENAS, AND SCHEDULING RULE 16(b) SCHEDULING
CONFERENCE
Plaintiff Hemlock Semiconductor (“Hemlock”) and Defendant Kyocera are significant
participants in the global solar energy industry. Their immediate dispute arises from a series of
contracts for the sale of quantities of industrial-grade polycrystalline silicon by Hemlock to
Kyocera. Following changes in global solar market conditions, Kyocera sought to excuse its
performance under a force majeure provision in the parties’ contracts. In response, Hemlock
sought adequate assurances that Kyocera would perform its obligations under the agreements.
When Hemlock concluded that Kyocera had not provided adequate assurances that it would
perform its contractual commitment, it initiated this suit.
Hemlock filed its initial complaint on April 1, 2015, and filed an amended complaint on
April 29, 2015. ECF No. 4. Now before the Court are three motions filed by Hemlock on August
3, 2015: (1) Motion to Dismiss Defendant Kyocera Corporation’s Counterclaims, ECF No. 21;
(2) Motion to Strike Defendant Kyocera Japanese Antitrust Defense, ECF No. 22; and (3)
Motion to Quash Non-Party Subpoenas Issued by Defendant Kyocera Corporation, ECF No. 24.
Hemlock’s motion to dismiss and motion to strike will be granted. Hemlock’s motion to quash
non-party subpoenas will be provisionally granted.
Also before the Court are two motions from Kyocera. ECF Nos. 38 and 45. Kyocera’s
motion for partial judgment on the pleadings will be denied without prejudice, and Kyocera’s
motion to compel discovery will be addressed at the Rule 16(b) conference.
I.
Hemlock, Plaintiff in this action, is a Michigan corporation involved in the manufacture
and sale of polycrystalline silicon (“polysilicon”) and photovoltaic solar cells and modules. ECF
No. 4 at ¶¶ 1, 3, 7. The majority of the common stock of Hemlock is owned by Dow Corning
Corporation. Shin-Etsu Handotai Co. Ltd. owns a significant minority interest in Hemlock. See
Joint Venture Partners, HSCPOLY, http://www.hscpoly.com/content/hsc_comp/ownership.aspx.
Shin-Etsu is described as “the largest chemical company in Japan.” See Top 100 Global
Innovators,
THOMAS
REUTERS,
top100innovators.stateofinnovation.thomsonreuters.com
/content/shin-etsu-chemical. Kyocera, Defendant in this action, is a Japanese corporation that
describes itself as “one of the world’s largest vertically-integrated producers and suppliers of
solar energy panels.” ECF No. 4 at ¶ 8.
A.
In considering Hemlock’s motion to dismiss, the Court accepts the facts in a light most
favorable to the nonmovant, Kyocera. See Lambert v. Hartman, 517 F.3d 443, 439 (6th Cir.
2008). Beginning in 2005, in the face of a worldwide polysilicon shortage, Hemlock and
Kyocera entered into four long-term polysilicon supply contracts. The first Long Term Supply
Agreement (“Agreement I”) is effective from August 30, 2005 to December 31, 2015. The
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second Long Term Supply Agreement (“Agreement II”) is effective from July 21, 2006 to
December 31, 2018. The third Long Term Supply Agreement (“Agreement III”) is effective from
July 18, 2007 to December 31, 2019.
Finally, the fourth Long Term Supply Agreement
(“Agreement IV”) is effective from November 13, 2008 to December 31, 2020. Am. Compl. at
¶¶ 12-13. The agreements require Kyocera to make large initial payments to assist Hemlock’s
expansion of its existing polysilicon production facilities in the United States.
After the parties entered into the agreements, the global solar industry was affected by
Chinese government intervention. Specifically, the Chinese government provided subsidies to
Chinese solar-based companies and facilitated large-scale “dumping” of Chinese solar panels
into the global market in order to increase Chinese market share in the solar industry. In
response, in 2012 the United States government imposed anti-subsidy and anti-dumping import
tariffs of 24-36 percent on Chinese solar components. These state actions caused the prices of
both polysilicon and solar panels to drop precipitously.
In response to the falling market prices, the parties agreed to short-term contract
modifications in 2011 and 2012 that lowered the gross price and the advance payment for those
years. These modifications did not affect any other contract terms or future pricing schedules.
While the short-term price amendments came to an end, the Chinese market saturation and
resulting trade war did not. From mid-2014 to early 2015, Kyocera proposed additional price
modifications, all of which Hemlock rejected.
B.
After failing to reach a modification agreement, Kyocera sent notice to Hemlock in
February 2015 that it was exercising a contractually bargained-for right to invoke the force
majeure provision of Agreement IV. Hemlock refused to recognize Kyocera’s invocation of any
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force majeure rights, contending that the force majeure provision in Agreement IV did not
excuse Kyocera from performance because of the changing solar-market conditions.
Consequently, on February 13, 2015 Kyocera filed suit in Michigan state Court seeking a
declaration that its contractual performance could be excused by Agreement IV’s force majeure
clause.
On June 16, 2015, the Michigan State trial court granted Hemlock’s motion for summary
disposition, finding that the change in market conditions did not implicate Agreement IV’s force
majeure clause. On December 3, 2015, the Michigan Court of Appeals affirmed, explaining that
Kyocera had assumed the market risks that gave rise to the alleged liability and that “the plain
language of the force majeure clause at issue does not permit relief to plaintiff on the grounds
that the market for polysilicon has shifted, regardless of the cause of that shift.” Kyocera Corp.
v. Hemlock Semiconductor, 15-025786-CK *2 (Mich. Ct. App. Dec. 3, 2015), ECF No. 58 Ex. A.
C.
On February 26, 2015 Hemlock sent Kyocera a demand for adequate assurances that it
would perform under Agreements I-III pursuant to MCLA § 440.2609. Compl. ¶ 28. Kyocera
sent Hemlock a response on March 26, 2015, arguing that Kyocera had no obligation to provide
written assurances to Hemlock and that MCLA § 440.2609 did not apply to the supply
agreements. Id. at ¶ 29. Hemlock then initiated the instant suit on April 1, 2015 alleging that
Kyocera had failed to provide Hemlock with adequate assurances that it would make purchases
under the supply agreements in 2015. Am. Compl. ¶ 28. Two days later, on April 3, 2015,
Kyocera filed a complaint against Hemlock in the Civil Division of Tokyo District Court in
Japan. The Tokyo complaint alleges that Hemlock violated Japanese antitrust law by abusing a
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superior position of bargaining power in entering into the supply agreements. That case remains
pending.
On July 7, 2015 Kyocera filed an answer to Hemlock’s amended complaint, listing
twenty-five affirmative defenses and seven counterclaims. ECF No. 9. Hemlock responded on
August 3, 2015 by filing a motion to dismiss Kyocera’s counterclaims, a motion to strike
Kyocera’s Japanese Antitrust Defense, and a Motion to quash non-party subpoenas. ECF Nos.
21-22, 24. Subsequently, on September 15, 2015 Kyocera filed a motion for partial judgment on
the pleadings. ECF No. 38. Finally, on October 8, 2015, Kyocera filed a motion to compel
discovery. ECF No. 45. Each of these pending motions will be addressed in turn.
II.
The Court first addresses Plaintiff Hemlock’s motion to dismiss Defendant Kyocera’s
seven counterclaims. ECF No. 21. This Court may dismiss a pleading for “failure to state a
claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). A pleading fails to state a
claim if it does not contain allegations that support recovery under any recognizable legal theory.
Ashcroft v. Iqbal, 556 U.S. 662, 678, (2009). In considering a Rule 12(b)(6) motion, the Court
construes the pleading in the non-movant’s favor and accepts the allegations of facts therein as
true. See Lambert, 517 F.3d at 439. The pleader need not have provided “detailed factual
allegations” to survive dismissal, but the “obligation to provide the ‘grounds’ of his
‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of
the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555
(2007). Furthermore, the legal effects of contractual clauses are questions of law that must be
reviewed de novo. Quality Products and Concepts Co. v. Nagel Precision, Inc.,666 N.W.2d 362,
369 (Mich. 2003). In essence, the pleading “must contain sufficient factual matter, accepted as
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true, to ‘state a claim to relief that is plausible on its face.’” Iqbal, 556 U.S. at 678, (quoting
Twombly, 550 U.S. at 570).
Kyocera has brought the following seven counterclaims against Hemlock that Hemlock
now moves to dismiss: (1) Declaratory Judgment of Impracticability/Impossibility; (2)
Declaratory Judgment of Frustration of Purpose; (3) Declaratory Judgment of Force Majeure for
Agreement III; (4) Declaratory Judgment that Agreements I-III are Void for Violations of Public
Policy, Including Illegality; (5) Declaratory Judgment that Agreements I-III are Void for Mutual
Mistake; (6) Unjust Enrichment; and (7) Breach of Agreements I-III. See ECF No. 9 47-60.
Five of the seven counterclaims seek declaratory judgments. Under the Declaratory
Judgment Act, a district courts may “[i]n a case or controversy, within its jurisdiction ... declare
the rights and other legal relations of any interested party seeking such declaration, whether or
not further relief is or could be sought.” 28 U.S.C. § 2201(a) (2012). There is no clear rule
addressing whether a declaratory judgment action meets the Article III case and controversy
requirement, however, parties involved must have “adverse legal interests,” and there must be an
actual dispute that relates to the “legal relations[hip]” between them. Medlmmune, Inc. v.
Genentech, Inc., 549 U.S. 118, 127, 127 (2007). The parties’ dispute must be the kind that
requires the “specific” and conclusive relief that a declaratory judgment offers. Aetna Life Ins.
Co. v. Haworth, 300 U.S. 227, 240–41 (1937). The party seeking the declaratory judgment has
the burden of demonstrating that an actual case or controversy exists.
A.
Kyocera’s first counterclaim seeks a declaratory judgment that Kyocera is relieved from
performance under Agreements I-III on a theory of impracticability/impossibility. Answer to
Am. Compl. ¶¶ 71-81, ECF No. 9. Generally, under Michigan law, “[e]conomic unprofitableness
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[sic] is not the equivalent to impossibility of performance. Subsequent events which in the nature
of things do not render performance impossible, but only render it more difficult, burdensome, or
expensive, will not operate to relieve [a party of its contractual obligations].” Chase, 217 N.W. at
567. See, also Milligan 295 N.W. at 563, and Sheldon 29 N.W.2d at 835.
The Sixth Circuit considered a set of claims similar to those now before this Court in
Karl Wendt Farm Equipment Co., Inc. v. International Harvester Co., 931 F.2d 1112, 1117-18
(6th Cir. 1991). In holding that impracticability was an “inappropriate defense” in that case, the
Court explained:
The fact that [Defendant] experienced a dramatic downturn in the farm equipment
market and decided to go out of the business does not excuse its unilateral
termination of its dealership agreements due to impracticability. [Defendant]
argues that while mere unprofitability should not excuse performance, the
substantial losses and dramatic market shift in the farm equipment market
between 1980 and 1985 warrant the special application of the defense in this case.
[Defendant] cites losses of over $2,000,000.00 per day and a drop in the
company’s standing on the Fortune 500 list from 27 to 104…. [Defendant] also
put on evidence that if it had not sold its farm equipment division, it might have
had to declare bankruptcy. While the facts suggest that [Defendant] suffered
severely from the downturn in the farm equipment market, neither market shifts
nor the financial inability of one of the parties changes the basic assumptions of
the contract such that it may be excused under the doctrine of impracticability.
Id.
Kyocera argues that Karl Wendt is inapplicable here. Specifically, Kyocera claims that
Karl Wendt was limited to its particular facts and that the Court acknowledged the defense of
impracticality/impossibility was available in other factual situations. Kyocera also argues that
Karl Wendt is distinguishable in that it did not involve claims of “illegal or non-routine actions,
much less concerted, continuous, and illegal series of acts to override free market forces, as was
alleged here.” ECF No. 34 at 15.
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These arguments are without merit. The alleged illegal acts of the Chinese government
have no bearing on whether Kyocera’s performance has become impossible or impracticable.
Rather, the alleged illegal acts have simply caused a market shift in pricing, making it
unprofitable for Kyocera to continue to perform as promised. Regardless of the cause of the
market shift, Kyocera’s allegations amount only to claims of “economic unprofitableness,”
which are insufficient to give rise to claims of impossibility or impracticability. See Chase, 217
N.W. at 567. Kyocera’s first counterclaim will thus be dismissed.
B.
Kyocera next seeks a declaratory judgment that it is relieved from performance under
Agreements I-III on a theory of frustration of purpose. Answer to Am. Compl. ¶¶ 82-92.
“Frustration of purpose is generally asserted where a change in circumstances makes one party’s
performance virtually worthless to the other….” Liggett, 676 N.W.2d at 637 (internal citations
and quotations omitted). Application of the doctrine of frustration is a question of law and not a
question of fact. See Restatement (Second) of Contracts, 310 (1979); See also Columbian
National Title Insurance Company v. Township Title Services, Inc., 659 F.Supp. 796
(D.Kan.1987).
For a party to avail itself of the defense of frustration of purpose under Michigan law it
must prove the following conditions:
(1) the contract must be at least partially executory; (2) the frustrated party’s
purpose in making the contract must have been known to both parties when the
contract was made; (3) this purpose must have been basically frustrated by an
event not reasonably foreseeable at the time the contract was made, the
occurrence of which has not been due to the fault of the frustrated party and the
risk of which was not assumed by him.
Molnar v. Molnar, 313 N.W.2d 171, 173 (Mich. Ct. App. 1981).
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The first prong is satisfied, since all three agreements are executory. Under the first
agreement, the parties are obligated to perform through the 2015 calendar year. Under the
second and third agreements, the parties are obligated to perform through 2018 and 2019
respectively.
Thus the parties have continuing performance obligations under all three
agreements at issue.
The second prong turns on the primary purpose of the contract. According to the
Restatement (Second) of Contracts, “It is not enough that he had in mind some specific object
without which he would not have made the contract. The object must be so completely the basis
of the contract that, as both parties understand, without it the transaction would make little
sense.” Restatement (Second) of Contracts § 265.
In its counterclaim, Kyocera alleges that the purpose of the contract was “to create a
long-term agreement in which Kyocera would help Hemlock grow its manufacturing capabilities,
and in which Hemlock would use that expanded production to provide Kyocera with a stable
supply of polysilicon within a legally functioning market.” ECF No. 9. Although all of the
nonmovant’s factual allegations must be accepted as true in reviewing a motion to dismiss, legal
conclusions need not be taken as true. See Lambert, 517 F.3d at 439. To determine the intent of
the parties, courts must enforce unambiguous contracts according to their terms. See Quality
Products, 666 N.W.2d at 370-71. “[A]n unambiguous contractual provision is reflective of the
parties’ intent as a matter of law.” Id. at 375.
Kyocera’s contention regarding the primary purpose of the agreements goes too far. The
unambiguous primary purpose of the agreements was for Hemlock to provide Kyocera with a
stable supply of polysilicon at a predictable price. This is apparent by the preambles of the
agreements, which provide, “…Buyer desires to purchase and [Hemlock] agrees to sell Products
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(herein defined) pursuant to the terms and conditions of this Agreement.”
See ECF No. 1,
Exhibit 1 at 1, Exhibit 2 at 1, Exhibit 3 at 1. It is also apparent by the parties’ choice to structure
their relationship in the form of long-term requirement contracts in order to provide some
stability in fluctuating markets. Any express or implied understanding that Hemlock would
expand its production capabilities was collateral to this central purpose.
Under the third prong, the primary purpose must have been “basically frustrated by an
event not reasonably foreseeable at the time the contract was made, the occurrence of which has
not been due to the fault of the frustrated party and the risk of which was not assumed by him.”
Molnar, 313 N.W.2d at 173. In general, “[i]t is not enough that the transaction has become less
profitable for the affected party or even that he will sustain a loss.” Seaboard Lumber Co. v.
U.S., 41 Fed.Cl. 401, 417 (Fed.Cl.1998). “The frustration must be so severe that it is not fairly to
be regarded as within the risks that he assumed under the contract.” Id. (quoting Restatement
(second) of Contracts § 265 (1981)). “[A] lack of profit is generally insufficient to frustrate the
purpose of a contract.” Seaboard Lumber, 41 Fed.Cl at 418.
Regardless of any changes in the polysilicon market and regardless of the cause of those
changes, Hemlock is still able to provide Kyocera with a stable supply of polysilicon at a
predictable price. There is no allegation that Hemlock can no longer provide polysilicon to
Kyocera, and there is no allegation that there is no longer an existing market for solar products.
Kyocera simply claims that it can no longer act profitably in the international solar market if it
must honor its supply agreements with Hemlock. A party’s claim that it is unable to conduct
business profitably is insufficient to state a claim of frustration of purpose.1 As a matter of law,
the primary purpose of the agreements between Hemlock and Kyocera has not been frustrated.
1
It is unclear whether the defense of frustration of purpose can even justify rescission of a contract under Michigan
law. See Liggett, 676 N.W.2d at 637; See also Klein Steel Services Inc. v. Sirius Protection, LLC, 2014 WL 1685912
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Kyocera argues that the illegal actions of a third party, the Chinese government, in
manipulating the solar markets were unforeseeable. However, because the Chinese
Government’s actions did not have an effect on the principal purpose of the agreement –
Hemlock providing Kyocera with a stable supply of polysilicon at a predictable price – whether
those acts were foreseeable is not material. Under the doctrine of frustration of purpose,
foreseeability is only relevant to the extent that it relates to an action that frustrates the primary
purpose of a contract. See Molnar, 313 N.W.2d at 173.
Kyocera also argues that it should not have to bear the entire risk of harm resulting from
China’s illegal disruption of the solar market. ECF No. 34 at 11. However, Kyocera concedes
that the agreements were initiated “[t]o combat the instability in the solar market.” ECF No. 34 at
3. In setting forth long-term price and quantity schedules, both parties accepted a risk that future
market developments would work against them.
Hemlock accepted the risk that polysilicon
prices would increase, requiring them to sell to Kyocera at below market prices. Kyocera
accepted the risk that prices would decrease, requiring them to buy from Hemlock at above
market prices. More likely than not one party to the contract would profit and one would lose
based on changes in the market price. In this circumstance Kyocera ended up on the losing end
of the equation.
C.
In its third counterclaim, Kyocera seeks a declaratory judgment that the force majeure
provision of Agreement III excuses its performance. Answer to Am. Compl. ¶¶ 93-107. The
effect of a force majeure clause is to excuse performance in the event an unforeseen
(E.D. Mich. 2014). Federal courts in Michigan have dismissed claims for rescission on this ground. See, e.g. Klein
Steel Services, WL 1685912 at *4. A party can, however, seek restitution under a theory of frustration of purpose if
that party has conferred any benefits on the opposing party through partial performance. See Jabero v. Harajli, 2004
WL 1335896 at *3 (Mich.Ct.App. 2004).
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circumstance occurs.” Melford Olsen Honey, Inc. v. Adee, 452 F.3d 956, 963 (8th Cir.2006).
“The performance to be excused is determined by the language of the clause.” Id. The
“bargained for” force majeure clause found in Agreement III provides:
HSC shall not be liable for delays or failures in performance of an order or default
in the delivery arising out of or resulting from causes beyond its control. Such
causes include, but are not limited to, acts of God, acts of Buyer, acts of the
Government or the public enemy, fire, flood, epidemics, quarantine restrictions,
strikes, freight embargoes, severe weather, equipment breakage or default of
suppliers due to any of such causes. In the event of any such delay of HSC’s
performance, Buyer shall honor its obligations hereunder as soon as HSC is able
to perform.
If HSC fails to deliver or Buyer fails to Purchase Product…and such failure
occurs as the result of a Force Majeure Event, HSC may deliver and Buyer may
purchase the deficient Product, (at the prevailing contract price which was in
effect during the Force Majeure Event), within a reasonable time after resolution
of the Force Majeure Event, (determined by mutual agreement of the parties).
The term of this Agreement may be extended for a period not to exceed one (1)
year so as to complete the purchase and delivery of deficient Product. HSC will
provide Buyer notice of the deficient Product delivery schedule for the deficient
Product prior to delivery as well as notice of its request to extend the Terms of the
Agreement.
In addition, if due to force majeure or any other cause, HSC is unable to produce
sufficient goods to meet all demands from customers and internal uses, HSC shall
have the right to allocate production among its customers and plants in any
manner which HSC may determine to be equitable.
See Exhibit 3 § 19, ECF No. 28.
Force majeure is not a contract defense under Michigan Law, but it can be a bargainedfor contract provision or protection. See Hemlock Semiconductor Corp. v. Deutsche Solar
GmbH, 2015 WL 4476327 (E.D. Mich. 2015).
Numerous courts have refused to apply
contractual force majeure clauses where “governmental action affects the profitability of a
contract, but does not preclude a party’s performance.” United Sugars Corp. v. U.S. Sugar Co.,
Inc., 2015 WL 1529861 (D.C. Minn. 2015). See also Seaboard Lumber Co. v. United States, 308
F.3d 1283, 1293–94 (Fed.Cir.2002) (declining to apply the force majeure clause because the risk
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that market price will make performance unprofitable is inherent in fixed-price contracts); In re
Millers Cove Energy Co., 62 F.3d 155, 159 (6th Cir.1995) (holding that “lack of economic
feasibility” does not exclude contract performance under contract’s force majeure clause absent
specific language to that effect); Langham–Hill Petroleum, Inc. v. S. Fuels Co., 813 F.2d 1327,
1330 (4th Cir.1987) (rejecting application of force majeure clause where foreign government
acted to cause a collapse in world oil prices, making the contract unprofitable for one party); N.
Ind. Pub. Serv. Co. v. Carbon Cnty. Coal Co., 799 F.2d 265, 274–76 (7th Cir.1986) (holding that
the government’s denial of a party’s request to pass increased coal prices along to its customers
did not excuse that party from a long-term contract to buy coal even though performance created
economic hardship); B.F. Goodrich Co. v. Vinyltech Corp., 711 F.Supp. 1513, 1519
(D.Ariz.1989) (rejecting the argument that an unexpected drop in market price was within the
scope of the contract’s force majeure clause).
The most analogous case to the present case is Langham-Hills. There, following the
collapse of the world crude oil market because of Saudi Arabian attempts to acquire market
share, Southern Fuels attempted to invoke a force majeure clause in its fixed price petroleum
supply contract with Langham-Hills. Langham Hills, 813 F.2d at 1329. Langham-Hills then
brought suit against Southern Fuels in federal district court for breach of contract. Id. Declining
to find a contractual force-majeure clause applicable, the district court granted Langham-Hills
motion for summary judgment. The Fourth Circuit Court of Appeals affirmed, citing “the law of
contracts and the realities of the business world.” Id. The Fourth Circuit explained that “[i]f
fixed-price contracts can be avoided due to fluctuations in price, then the entire purpose of fixedprice contracts, which is to protect both the buyer and the seller from the risks of the market, is
defeated.” Id. at 1330. The Court then quoted the Seventh Circuit:
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[the defendant] committed itself to paying a price at or above a fixed minimum
and to taking a fixed quantity at that price. It was willing to make this
commitment to secure an assured supply of [the product], but the risk it took was
that the market price of [the product or substitutes] would fall. A force majeure
clause is not intended to buffer a party against the normal risks of a contract. The
normal risk of a fixed price contract is that the market price will change. If it rises,
the buyer gains at the expense of the seller (except insofar as escalator provisions
give the seller some protection); if it falls, as here, the seller gains at the expense
of the buyer. The whole purpose of a fixed price contract is to allocate risks in this
way. A force majeure clause interpreted to excuse the buyer from the
consequences of the risk he expressly assumed would nullify a central term of the
contract.
Id. (quoting N. Ind. Pub. Serv., 799 F.2d at 275). See also In re Millers Cove Energy Co., Inc.,
62 F.3d 155, 158 (6th Cir. 1995) (adopting the Fourth Circuit’s reasoning in Langham-Hill).
The “bargained for” force majeure provision in Agreement III does not excuse Kyocera
from performing under the circumstances alleged. First, by its express terms the protections of
the force majeure clause as written was to protect Hemlock from unanticipated events, not
Kyocera. See Exhibit 3 § 19, ECF No. 28 (“[Hemlock] shall not be liable for delays or failures
in performance of an order or default in the delivery arising out of or resulting from causes
beyond its control”). Second, the contractual provision only addresses events that give rise to an
actual, physical inability to perform, not those that only make performance inconvenient. Id.
Third, the force majeure provision does not allow a total rescission of the contract or excuse
from performance, but merely provides for a delay in performance. Id. (“In the event of any
such delay of HSC’s performance, Buyer shall honor its obligations hereunder as soon as
[Hemlock] is able to perform”). Accordingly, Kyocera’s claim that an unfavorable market
fluctuation warrants excuse of performance under Agreement III’s force majeure clause is
without merit as a matter of law and will be dismissed.
D.
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In its fourth counterclaim, Kyocera seeks a declaratory judgment that Agreements I-III
are void for violations of public policy, including illegality. See Answer to Am. Compl. ¶¶ 108115.
Specifically, Kyocera argues that the Agreements violate Article 19 of Japanese
Antimonopoly Law and Article 90 of the Japanese Civil Code, which prohibits contract
provisions that are against the public order and morals.
Hemlock moves to dismiss this
counterclaim on the grounds that Kyocera has failed to plead any facts in support of its Japanese
antitrust claim and Kyocera has not alleged that the Supply Agreements violate antitrust law on
their face. In the alternative, Hemlock argues the claim should be dismissed in consideration of
principles of international comity.
In its response to Hemlock’s motion to dismiss, Kyocera asserts that its counterclaim for
declaratory judgment under Japanese antitrust laws should not be dismissed because its Tokyo
district court complaint has been incorporated into its answer and counterclaims. Kyocera
further argues that its Japanese antitrust claim will be decided by a Japanese court, and so this
Court will not need to consider any complex factual issues related to the claims. Kyocera
concludes that comity considerations weigh in favor of allowing the Japanese court to determine
if Hemlocks’ agreements violate Japanese law before this Court determines if that illegality bars
enforcement. Kyocera in effect argues that this Court should apply the doctrine of abstention,
staying consideration of the present matter until the Tokyo courts have decided the Japanese
antitrust issue. Kyocera then seeks to apply the principal of collateral estoppel to the Tokyo
judgment in this Court.
Hemlock argues that Kyocera has failed to state a claim upon which relief may be
granted. To raise a claim under Federal Rule of Civil Procedure 8(a), a pleading must contain “a
short and plain statement of the claim showing that the pleader is entitled to relief”. Id. A
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pleading fails to state a claim if it does not contain allegations that support recovery under any
recognizable legal theory. Ashcroft v. Iqbal, 556 U.S. 662, 678, (2009). The “obligation to
provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions,
and a formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555 (2007). In essence, the pleading “must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Iqbal, 556 U.S. at
678, (quoting Twombly, 550 U.S. at 570).
Kyocera does not identify any legal theory or claim beyond a conclusory assertion that
the Agreements violate Japanese Antitrust law. Kyocera states only that “the contracts are
invalid because the contract clauses of the trading establish contract terms unilaterally
disadvantageous to Kyocera and are against the public order and morals… in Japan.” Answer to
Am. Compl. ¶ 111. Kyocera then claims that it is “entitled to a declaration that the Agreements
are void because, among other things, they are illegal under Japanese law, and it is not liable for
delays in performance of its obligations under the agreements.” Id. at ¶ 115. Kyocera has not
provided this Court with a recitation of the elements of the cause of action, much less any
explanation as to how the facts support such a theory of recovery. Because Kyocera has not
provided any explanation as to how the Supply Agreements violate the public order and morals
in Japan, Kyocera has not stated a claim upon which relief may be granted under Japanese
antitrust law. See Oparaugo v. Watts, 884 A.2d 63, 72 (D.C. 2005) (holding that the district court
acted properly in refusing a plaintiff’s request to apply foreign law where the plaintiff failed to
provide any information regarding the elements of the foreign law or any information as to how
the foreign law should be applied in assessing the sufficiency of his complaint).
- 16 -
Furthermore, in its response to Hemlock’s motion for summary judgment, Kyocera states
that “[t]he antitrust issues underlying Kyocera’s claim will be decided by the Japanese Court.
Kyocera is not asking this Court to consider any complex factual issues related to Kyocera’s
antitrust claims.” Resp. to Mot. to Dismiss Counterclaims 27. Accordingly, despite styling its
counterclaim as a motion for declaratory judgment, Kyocera does not appear to seek a
declaration about the parties’ rights or a decision concerning Kyocera’s legal claim. Instead, it
apparently seeks a declaratory judgment that any decision by the Tokyo district court in its favor
has collateral estoppel effect. Kyocera has not only failed to state a claim upon which relief may
be granted, but Kyocera has also failed to state a demand for the relief it actually seeks or any
allegations in support of that relief. See Fed. R. Civ. P. 8(a)(3).
Kyocera’s claim that the antitrust issue will be decided by a Japanese court is problematic
for an additional reason: the Supply Agreements contain both a forum selection clause and a
choice-of-law provision that preclude this Court from recognizing any decision by a Japanese
Court. The choice of forum provision states that the parties “submit to the exclusive jurisdiction
and venue of the U.S. District Court for the Eastern District of Michigan for all disputes arising,
directly or indirectly, under [the Supply Agreements].” Agreements I-III ¶ 21. The choice-oflaw provision provides that the Supply Agreements “shall be governed and controlled in all
respects by the laws of the State of Michigan, USA… and all disputes, including interpretation,
enforceability, validity, and construction, shall be determined under the law of the State of
Michigan, without regard to any conflict of law provision.” Id. at ¶ 20. Michigan public policy
“favors the enforcement of contractual forum-selection clauses and choice-of-law provisions.”
Turcheck v. Amerifund Financial, Inc., 725 N.W.2d 684, 688 (Mich. Ct. App. 2006). Indeed,
this point will be further discussed below in part III.B.
- 17 -
Because Kyocera has not stated a foreign antitrust counter-claim upon which relief may
be granted and because this Court cannot grant Kyocera the relief it seeks — recognition of a
Japanese district court judgment — Kyocera’s fourth counterclaim will be dismissed.
E.
In its fifth counterclaim, Kyocera claims that Agreements I-III are voidable for mutual
mistake. See Answer to Am. Compl. ¶¶ 116-22. Kyocera argues that the parties were mutually
mistaken in assuming that the polysilicon market would continue to legally function. Id. at 11819. Hemlock moves to dismiss this counterclaim, arguing that the doctrine of mutual mistake
relates only to “fact[s] in existence at the time the contract is executed” and not to predictions as
to occurrences or non-occurrences.
As explained by the Michigan Supreme Court, a mutual mistake excusing performance
must relate to facts in existence at the time the contract is executed. Lenawee Cty. Bd. of Health
v. Messerly, 331 N.W.2d 203, 207 (Mich. 1982). In other words “the belief which is found to be
in error may not be, in substance, a prediction as to a future occurrence or non-occurrence.” Id.
Mistaken expectations alone do not relate to a fact in existence at the time of the agreement.
Akahoshi v. S. Waste Servs., 181 F. Supp. 2d 711, 714 (E.D. Mich. 2001). “Moreover, rescission
of a contract for mutual mistake is not available where the party seeking rescission has assumed
the risk of loss in connection with the mistake.” Id.
Kyocera’s claim of mutual mistake amounts to an assertion that it was mistaken in its
failure to anticipate future market disruptions. This allegation does not raise a claim of mutual
mistake for two reasons. First, mistaken expectations about market behavior do not relate to a
fact in existence at the time the Supply Agreements were executed. Second, in entering into the
long-term supply agreements, Kyocera accepted the risk that the market prices for polysilicon
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would decrease, thereby rendering its performance unprofitable. See Seaboard Lumber, 308 F.3d
1293–94 (holding that the risk that market price will make performance unprofitable is inherent
in fixed-price contracts); Langham Hills, 813 F.2d at 1330 (holding that the entire purpose of
fixed-price contracts is to protect both the buyer and the seller from the risks of the market).
Because Kyocera has failed to state a claim of mutual mistake, its fifth counterclaim will be
dismissed.
F.
Kyocera next alleges that the large advanced payments it has paid to Hemlock constitute
unjust enrichment and violate Japanese antitrust law. See Answer to Am. Compl. ¶¶ 123-28.
Hemlock argues this counterclaim should be dismissed because the advanced payments were
expressly agreed to by the parties.
Unjust enrichment is a common law remedy whereby the law implies a contract in order
to prevent unjust enrichment, specifically when one party inequitably receives and retains a
benefit from another. See Martin v. East Lansing School Dist., 483 N.W.2d 656 (Mich. Ct. App.
1992). To proceed on such a claim, a plaintiff must establish (1) the receipt of a benefit by
defendant from plaintiff, and (2) an inequity resulting to plaintiff because of the retention of the
benefit by defendant. Barber v. SMH (US), Inc., 509 N.W.2d 791 (Mich. Ct. App. 1993).
“However, a contract will be implied only if there is no express contract covering the same
subject matter.” Belle Isle Grill Corp. v. Detroit, 666 N.W.2d 271 (Mich. Ct. App. 2003). In
other words, the law will not imply a contract where there is an express contract between the
same parties on the same subject matter. Morris Pumps v. Centerline Piping, Inc., 729 N.W.2d
898 (Mich. Ct. App. 2006) (quoting 42 CJS IMPLIED
33).
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AND
CONSTRUCTIVE CONTRACTS § 34, p.
Here, Agreement I contains an advance payment clause, expressly providing:
Non-Refundable Advance Payment. Buyer agrees to make a non-refundable,
unconditional, irrevocable advance payment in the amount of $36,120,000.00 (the
“Advance Payment”). Fifty percent (50%) of the Advance Payment shall be due
on or before October 3, 2005 and the remaining fifty percent (50%) shall be due
on or before October 2, 2006. Notwithstanding anything herein to the contrary,
Buyer expressly acknowledges its understanding and agrees that, once this
Agreement is executed, there are no circumstances or occurrences that will
require [Hemolock] to refund to Buyer all or any portion of the Advance payment.
The Advance Payment shall be applied as a credit against the price of the
Products that Buyer is required to purchase under this Agreement at the times and
amounts shown [in the schedules].
Agreement I ¶ 2. Agreement II contains the same clause, but requires a $48,000,000.00 advance
payment to be paid in installments on or before October 4, 2006, October 4, 2007, and October 4,
2008. Agreement II ¶ 2.
Agreement III contains a similar clause, requiring a $84,915,000.00 advance payment to
be paid in installments on or before October 4, 2007, October 4, 2008, and October 4, 2009.
Agreement III ¶ 2. The clause differs from the previous two advance payment clauses in that it
allows Kyocera to recover a portion of the advance payment if it sustains loss, damage, or injury
resulting from Hemlock’s failure to perform, specifically in situations involving a delay in
Hemlock’s completion of its expanded manufacturing facility. Id. at ¶¶ 2, 9, 15. Agreement III
limits any such liability to the “remaining net balance of the advanced payment”, and provides
that, “[e]xcept for situations involving a delay in completion of the manufacturing facility…
[Hemlock] shall not be liable for any loss, damage, or injury resulting from delay in delivery of
the products, or for any failure to perform which is due to circumstances beyond its control.” Id.
¶ 15 (original in all-caps).
Because the Supply Agreements expressly contemplate and govern Kyocera’s nonrefundable advance payments to Hemlock, Kyocera cannot recover its advance payments by
- 20 -
implied contract. See Belle Isle, 666 N.W.2d at 281 (concluding that a plaintiff could not recover
costs of improvement by implied contract where his lease expressly provided for capital
improvements in lieu of rent). See also Liggett Restaurant Group, Inc. v. City of Pontiac, 676
N.W.2d 633, 639 (Mich. Ct. App. 2003) (holding that the trial court properly dismissed the
plaintiff’s unjust enrichment claim where there was an express provision in the parties’ contract
contemplating the subject matter of the dispute); Fodale v. Waste Mgmt. of Mich., Inc., 718
N.W.2d 827, 841 (2006) (holding that a plaintiff was foreclosed from bringing an unjust
enrichment claim where an express contract governed the parties’ loan).
Kyocera argues that, despite the existence of express contracts governing the advance
payments, it may still proceed on its unjust enrichment counterclaim because the Supply
Agreements are invalid or unenforceable. In H.J. Tucker and Associates, Inc. v. Allied Chucker
and Engineering Co., the Michigan Court of Appeals held that a party could proceed on its
unjust enrichment claim where an express oral contract existed, but where there was a material
question as to the scope of the oral contract or whether the contract was still in force. 595
N.W.2d 176 (Mich. Ct. App. 1999). The court explained that the plaintiff could have recovered
under its breach of contract claim for the period of time that the contract was in force, and could
recover under its unjust enrichment claim for the period of time the contract was allegedly not
effective. Id. In the alternative, the court explained, the trial court could find that recovery
under unjust enrichment doctrine was appropriate if it found there was no contract between the
parties due to the dispute regarding material contract terms.
Unlike in H. J. Tucker, here the Supply Agreements are express written agreements.
Neither the scope nor the terms of the agreement are in dispute. Instead, Kyocera argues only
that the Supply Agreements are not enforceable contracts due to violations of Japanese antitrust
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law and mutual mistake. However, because Kyocera cannot proceed on either theory as a matter
law, See I.D. and I.E. supra, Kyocera cannot, as a matter of law, argue that the express contracts
are unenforceable under either theory.
Kyocera argues that it should be allowed to proceed on its unjust enrichment
counterclaim because it is not in pari delicto with Hemlock. Kyocera argues that if the Supply
Agreements are found to be illegal agreements under Japanese antitrust law, this Court should
not simply leave the parties as it finds them (the proper course of action when the Court is asked
to aid either party to an illegal agreement. Jones v. Chennault, 35 N.W. 2d 256, 267 (Mich.
1948)). Instead, Kyocera argues, because any illegality under Japanese antitrust law would be
the result of Hemlock’s abuse of its superior bargaining power, the parties are not in pari delicto
because Kyocera’s payments were a product of that abuse. Id.
On the present facts, the argument is academic. Because Kyocera has failed to properly
plead any claims under Japanese antitrust law, Kyocera cannot allege in this action that the
Supply Agreements are unenforceable under Japanese antitrust law.
Finally, Kyocera argues that Hemlock will be unjustly enriched if it is allowed to retain
the advance payments because Kyocera only committed to the advance payment arrangement
based on Hemlock’s promise that it would use the payments to expand its polysilicon production
facilities. However, because express written agreements exist between the parties, Kyocera
cannot challenge the fairness of the contract terms it agreed to or its performance under the
express contract terms on a quantum meruit theory of unjust enrichment. If Kyocera seeks to
challenge the fairness of the express contract terms, it must do so under claims of
unconscionability, duress or fraud. Kyocera may only challenge Hemlock’s performance under
the express contract terms by asserting a breach of contract claim.
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G.
In its seventh counterclaim Kyocera alleges that Hemlock has breached the ¶ 9 of the
Supply Agreements by failing to maintain expanded manufacturing facilities. See Answer to Am.
Compl. ¶¶ 129-134. Hemlock moves to dismiss that counterclaim, arguing that Kyocera has not
alleged the breach of any express provision of the Supply Agreements.
To state a breach of contract claim under Michigan law, a plaintiff must plead “(1) that
there was a contract, (2) that the other party breached the contract and, (3) that the party asserting
breach of contract suffered damages as a result of the breach.” Dunn v. Bennett, 846 N.W.2d 75
(Mich.Ct.App.2013).
The first prong requires an express promise, as “Michigan does not
recognize a cause of action for breach of the implied covenant of good faith and fair dealing.”
Fodale, 718 N.W.2d at 841.
The disputed provision of the Supply Agreements, ¶ 9, provides: “Buyer acknowledges
that [Hemlock] will be expanding its manufacturing facilities… in order to produce the Products
to be supplied under this Agreement.” Agreements I-III ¶ 9. That paragraph further provides:
“Buyer acknowledges the possibility of delays in completing the manufacturing facility and
expressly agrees that, so long as production of Product commences by [June 30, 2008/June 30,
2009/June 30, 2010], [Hemlock] SHALL HAVE NO LIABILITY TO BUYER FOR ANY
SUCH DELAY.” Id. (emphasis in originals).
Kyocera argues that ¶ 9 amounts to an express promise by Hemlock to maintain
expanded manufacturing capacities. Kyocera cites Sexton v. Panel Processing, Inc., for the
proposition that a promise is defined as “a manifestation of intention to act or refrain from acting
in a specified way, so made as to justify a promise in understanding that a commitment has been
made.” 912 F. Supp. 2d 475, 478 (E.D. Mich. 2013) aff’d 754 F.3d 332, 334 (6th Cir), cert.
- 23 -
Denied, 135 S. Ct. 677 (2014). Kyocera argues that the language of ¶ 9 stating that Hemlock
“will be expanding” is a manifestation of intention to act. Kyocera concludes that, viewing the
facts in a light most favorable to Kyocera, ¶ 9 supports Kyocera’s allegation of an express
contract term and a subsequent breach. As a result of this alleged breach, Kyocera claims that it
has suffered damages because it has not received what it bargained for in exchange for its
advance payments.
Hemlock, in contrast, argues that ¶ 9 is not an express promise, but merely serves as an
acknowledgment by Kyocera that Hemlock would be expending substantial capital
improvements to expand its manufacturing capacity. Hemlock argues that the purpose of that
acknowledgment was that Hemlock would eventually credit Kyocera’s advance payments
against Kyocera’s take-or-pay obligations. Hemlock further argues that, because no provision in
the agreement requires Hemlock to maintain expanded manufacturing facilities, Kyocera’s
breach of contract claim should be dismissed.
Viewing the facts in a light most favorable to Kyosera and assuming that ¶ 9 amounts to
an express promise by Hemlock to expand its manufacturing facilities, there is nothing in the
Supply Agreements that supports Kyocera’s allegation that Hemlock agreed to maintain
expanded manufacturing facilities.
At most, the provision could amount to a promise by
Hemlock to expand its manufacturing facilities to meet Kyocera’s product demands under the
Supply Agreements.
Accordingly, Kyocera’s claim will be dismissed to the extent that it
suggests that Hemlock breached the Supply Agreements by failing to maintain expanded
facilities.
Turning to Hemlock’s alleged promise to expand, Kyocera admits in its answer that
Hemlock’s expanded production facility in Tennessee was completed, but notes that it was
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permanently closed in December 2014. Answer to Am. Compl. ¶ 20. Kyocera also alleges that
Hemlock did not expand other facilities to the extent contemplated by the parties. Id. at ¶ 133. In
this way, Kyocera argues, Hemlock has breached a promise to perform.
It is not enough for Kyocera to allege that Hemlock breached a promise to perform.
Under Michigan law, Kyocera must also allege that it “suffered damages as a result of the
breach.” Dunn, 846 N.W.2d at 275. Kyocera makes no allegation that Hemlock has been unable
to meet its obligation to fulfill Kyocera’s demands for polysilicon under the Supply Agreements
— indeed, the basis of this lawsuit is Kyocera’s suggestions that it no longer has any demand
whatsoever for Hemlock’s polysilicon at the agreed upon prices. Kyocera thus does not allege
damages in the form of Hemlock’s failure to meet its product demands.
Kyocera does allege that it was damaged by not receiving what it bargained for in
exchange for its advance payments. Kyocera argues that because it agreed to the advanced
payments for the purpose of allowing Hemlock to expand its manufacturing facilities, it has been
injured as a result of Hemlock’s failure to sufficiently expand its facilities. However, by the very
terms of the advanced payment provision, Kyocera agreed “to make a non-refundable,
unconditional, irrevocable advance payment” and expressly acknowledged its understanding and
agreed that, “once this Agreement is executed, there are no circumstances or occurrences that
will require [Hemolock] to refund to [Kyocera] all or any portion of the Advance Payment.”
Agreements I-III ¶ 2. Nothing in the Supply Agreements suggests that the advanced payments
were in consideration for the expanded facilities. Instead, all three contracts are clear that the
advanced payments were “non-refundable, unconditional, [and] irrevocable.” Id. at ¶ 9. The
Supply Agreements further explain that the only circumstance or occurrence requiring Hemlock
to refund a portion of the advance payment is if, as a result of Hemlock’s delay in completing its
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expanded manufacturing facility, Kyocera suffered loss, damage or injury resulting from (1)
Hemlock’s delay in delivery or (2) Hemlock’s “failure to perform which is due to circumstances
beyond its control.” Id. at ¶ 15. Because Kyocera has not pled any loss, damage, or injury in
either form, it has not stated an injury under the Supply Agreements or under Michigan law. At
the time of the agreements, Kyocera agreed to the non-refundable, unconditional, and irrevocable
advanced payments. It cannot now, with the benefit of hindsight, recast the nature of those
advanced payments.
Furthermore, Kyocera’s advanced payments to Hemlock are to be “applied as a credit
against the price of the Products that Buyer is required to purchase under this Agreement at the
times and amounts shown [in the schedules].” Accordingly, any damages that Kyocera suffers
relating to the advanced payment is a result of its decision to cease performance under the agreed
upon terms of the Supply Agreements. If Kyocera continued to perform as promised, then the
advance payments would continue to be credited against Kyocera’s subsequent purchases.
In conclusion, even assuming that Hemlock promised to expand its manufacturing
facilities, Kyocera has not pled any actionable damages resulting from any breach of that
promise. Kyocera’s seventh counterclaim will thus be dismissed.
III.
Also before the Court is Hemlock’s Motion to strike Kyocera’s tenth affirmative defense,
relating to violations of Japanese antitrust law. Mot. to Strike, ECF No. 24. Hemlock argues that
Supreme Court precedent, as well as this Court’s recent decision in Hemlock Semiconductor
Corp. v. Deutsche Solar GmbH, 2015 WL 4476327 (E.D.Mich. May 7, 2015) support its motion.
In response Kyocera argues that this case is distinguishable from Deutsche Solar because
Kyocera is not asking the Court to adjudicate any foreign antitrust claim, but is instead asking
- 26 -
the Court to “respect a Japanese court’s adjudication of a pending Japanese antitrust claim.”
Resp. to Mot. to Strike 1, ECF No. 33.
A “court may strike from a pleading an insufficient defense or any redundant, immaterial,
impertinent, or scandalous matter.” Fed. R. Civ. P. 12(f). A defense is insufficient “if as a matter
of law, the defense cannot succeed under any circumstances.” Hahn v. Best Recovery Servs.,
LLC, 2010 WL 4483375, *2 (E.D. Mich. Nov.1, 2010) (internal quotation marks and citations
omitted). A Rule 12(f) motion is also proper “if it aids in eliminating spurious issues before trial,
thereby streamlining the litigation.” Id. (internal quotation marks and citation omitted).
“Generally, however, a Rule 12(f) motion should not be granted if the insufficiency of the
defense is not clearly apparent, or if it raises factual issues that should be determined on a
hearing on the merits.” Id. (internal quotation marks and citation omitted). Motions seeking to
strike an affirmative defense are disfavored and should be used sparingly. As observed by the
Sixth Circuit, a motion to strike “is a drastic remedy to be resorted to only when required for
purposes of justice. The motion to strike should be granted only when the pleading to be stricken
has no possible relation to the controversy.” Brown & Williamson Tobacco Corp. v. United
States, 201 F.2d 819, 822 (6th Cir. 1953) (internal quotation marks and citations omitted).
A.
The Supreme Court has twice addressed the question of when a contract’s illegality under
antitrust laws and regulations can serve as an affirmative defense in a contract-enforcement
action. See Kelly v. Kosuga, 358 U.S. 516 (1959), and Kaiser Steel Corp. v. Mullins, 455 U.S. 72
(1982). Under those opinions, a party can usually raise a claim of illegality under antitrust law in
a contract dispute only where a provision is patently illegal and not severable from the sued-upon
provision. See Hemlock Semiconductor Corp. v. Deutsche Solar GmbH, 2015 WL 4476327 (May
- 27 -
7, 2015). Here, there is no patent illegality in the supply agreements. Rather, Kyocera argues that
the Supply Agreements violate Japanese antitrust law if Hemlock abused a position of bargaining
power in arriving at the agreements.
i.
The District of Columbia Circuit addressed an affirmative antitrust defense that did not
allege patent antitrust illegality in National Souvenir Center, Inc. v. Historic Figures, Inc., 728
F.2d 503 (D.C. Cir. 1984). National Souvenir arose out of “a series of pre-trial rulings by the
district court in three consolidated anti-trust cases involving wax museums[.]” Id. at 506. After a
wax museum in Washington D.C. began franchising museums throughout the United States, the
franchisees sued, claiming that the agreements violated the Sherman Act because they
impermissibly tied a certain supplier’s figures to the museum franchise. Id. The franchisor and
owners responded by asserting a breach of contract counterclaim, to which the franchises
defended by alleging that the agreements were illegal tying agreements under the Sherman Act.
In dismissing the defense, the district court concluded that the defense could not be sustained
under Kaiser Steel because “the promise being sued on is not itself illegal under the antitrust
laws, [and so] Kaiser did not require recognition of the defense.” Id. at 508 (quoting opinion
below) (internal quotation marks omitted).
In reviewing the district court opinion, the District of Colombia Circuit Court noted that
“Kosuga was generally viewed as permitting antitrust defenses only in a very narrow class of
contract suits, courts being understandably hesitant to interpose complex antitrust issues in a
simple suit for breach of contract.” Id. The circuit court then read Kosuga to limit antitrust
defenses to situations where “the requested enforcement was of agreements not to compete or
other direct market restrictions, that made ‘the court . . . a party to an anticompetitive scheme.’”
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Id. (quoting Mullins v. Kaiser Steel Corp., 642 F.2d 1302 (D.C. Cir. 1980)). The circuit court
noted that the Supreme Court in Kaiser Steel “opened the window only a notch to antitrust
defenses, i.e., it refused to enforce a promise to pay that was itself a mechanism to police
anticompetitive conduct.” Id. In distilling the two cases, the circuit court determined the relevant
inquiries are (1) whether the agreement to be enforced is facially illegal under federal antitrust
laws (the Kosuga question) and (2) whether the agreement to be enforced is itself a mechanism
to enforce a collateral agreement or provision that facially violates federal antitrust laws.
In the case before it, the District of Columbia Circuit determined that “the promises to
pay franchise fees in this case do not appear on their face to be primarily means to enforce the
allegedly illegal tie-ins between the wax figures and start-up services.” Id. Rather, they appeared
to be merely consideration for goods and services, or nothing more than an inoffensive market
transaction. Id. Importantly, the court held:
To transform the contracts here into illegal tie-ins would require complex proof of
monopoly power in the tying market and leverage of that power in the tied
market. Even then, their vice would extend only to the amount that the agreed
prices exceeded the fair value of the goods and services received and consumed—
the portion of the prices that could be traced to the illegal practice. The
complexity of proof and speculative nature of appellants’ defenses seem to us to
place them outside of the [Kaiser Steel] exception and clearly within the ambit of
disfavor for such defenses articulated in Kosuga.
Id. at 515-16. Stated differently, not only was the promise the court was asked to enforce not
patently illegal, but fulfilling the promise did not force the franchisees to comply with another
portion of the agreement that was patently illegal. Any illegality under a collateral provision of
the agreement would only arise under the presence of specific market conditions external to the
agreement and upon which the agreement does not rely.
ii.
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Here, Kyocera does not challenge any specific provision of the Supply Agreements as
patently illegal under Japanese Antitrust law.
Instead, Kyocera argues that the Supply
Agreements are wholly invalid and unenforceable under Japanese Antitrust law because
“Hemlock abused its superior bargaining position to obtain punitive terms from Kyocera in
violation of Japan’s Anti-Monopoly Act (“AMA”). Resp. to Mot. to Strike 5. Kyocera argues
that, although Hemlock’s market dominance is probative, it is not required under Japanese
antitrust law, and that Kyocera’s claim does not need to allege any market-control thresholds or
any particular market share. Id. at 6.
Kyocera makes no allegation that the Supply Agreements either (1) facially violate
Japanese Antitrust law or (2) serve as a mechanism to facially violate Japanese Antitrust law. As
such, Kyocera’s claim of wholesale unenforceability under a broad and amorphous provision of
Japanese antitrust law is not a defense in this breach of contract case.
Kyocera attempts to distinguish this case from Kaiser Steel and Kosuga by arguing that
those cases involved situations where one party had already received the property of another and
the complaining party sought to avoid paying for the delivered goods. In contrast, Kyocera
argues that there are no delivered goods in the present case and that it is being forced to pay for
goods that it has not received. First, the decision to cease acceptance of goods under the Supply
Agreements is Kyocera’s. If Kyocera honored the terms and schedules that it agreed to in the
Supply Agreements, then its advance payments would continue to be credited against its future
purchases. Second, and more importantly, this is not a material distinction and has no bearing on
the question of whether it is appropriate for this Court to entertain a foreign anti-trust defense as
part of a Michigan breach of contract case.
- 30 -
Kyocera also argues that, like in Kaiser Steel¸ the Supply Agreements require Kyocera to
pay a penalty if it selects any supplier other than Hemlock. Kyocera cites to no provision of the
Supply Agreements supporting such an argument, and there is in fact no provision of the Supply
Agreements requiring Kyocera to pay a penalty if it uses polysilicon suppliers other than
Hemlock. Furthermore, Kyocera provides no explanation as to how any such provision would
violate Japanese antitrust law — the law that Kyocera attempts to raise in its defense. The fact
that such conduct was found to facially violate United States antitrust law in Kaiser Steel is
irrelevant where Kyocera has not pled as a defense any violations of United States antitrust law.
B.
Kyocera also attempts to distinguish this case from Deutsche Solar by arguing that this
Court should not in fact adjudicate any Japanese antitrust issues. Id. at 7. Kyocera instead
argues that this Court should apply the doctrine of abstention and, if and when the Japanese court
issues a final and valid judgment on the antitrust issue, review the Japanese court’s findings and
determine whether the decision renders Hemlock’s contract unenforceable in the United States.
Id.
Abstention from the exercise of federal jurisdiction is a “narrow exception to the duty of
a District Court to adjudicate a controversy properly before it.” Colorado River Water
Conservation Dist. v. United States, 424 U.S. 800, 813 (1976). It is “the exception, not the rule.”
Id. Colorado River instructed courts to consider several factors in determining whether to abstain
in favor of a parallel proceeding in the courts of another sovereign, the most important factor
being whether there exists a “clear federal policy evinc[ing] ... the avoidance of piecemeal
adjudication.” Id. Additional factors include how far the parallel proceeding has advanced in the
other sovereign’s courts, the number of defendants and complexity of the proceeding, the
- 31 -
convenience of the parties, and whether a sovereign government is participating in the suit. See
Answers in Genesis of Kentucky, Inc. v. Creation Ministries Intern., Ltd., 556 F.3d 459, 467 (6th
Cir. 2009).
As to breach of contract cases, there is no clear federal policy evincing the avoidance of
piecemeal adjudication. There is, however, a clear federal policy in favor of enforcing bargained
for forum selection clauses. E. & J. Gallo Winery v. Andina Licores S.A., 446 F.3d 984, 991-92
(9th Cir. 2006). American courts will generally only recognize foreign judgments that are both
final and valid. See Pilkington Bros. P.L.C. v. AFG Industries Inc., 581 F.Supp. 1039, 1045 (D.
Del. 1984). Even where a party obtains a final and valid foreign judgment, a court may refuse to
recognize the judgment “where the proceeding in the foreign court was contrary to an agreement
between the parties under which the dispute in question was to be determined otherwise than by
proceedings in that foreign court.” 2005 Recognition Act § 4(c)(5); 1962 Recognition Act §
4(b)(5). In Bremen v. Zapata Off-Shore Co., the United States Supreme Court held that, where a
choice of forum was made “in an arm’s-length negotiation by experienced and sophisticated
businessmen… absent some compelling and countervailing reason it should be honored by the
parties and enforced by the courts.” 407 U.S. 1, 11 (1972).
In order to overcome this
presumption a party must show that the provision in question was affected by “fraud, undue
influence, or overweening bargaining power.” Id. at 12. The Court concluded that, “in the light
of present-day commercial realities and expanding international trade we conclude that the forum
clause should control absent a strong showing that it should be set aside.” Id. at 15. Circuit
Courts have applied this Bremen test to choice of law provisions as well as choice of forum
provisions. See Lipcon v. Underwriters at Lloyd’s, London, 148 F.3d 1285, 1292 (11th Cir.
1998).
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The Supply Agreements contain a choice of forum provision stating that the parties
“submit to the exclusive jurisdiction and venue of the U.S. District Court for the Eastern District
of Michigan for all disputes arising, directly or indirectly, under [the Supply Agreements].”
Agreements I-III ¶ 21. The Supply Agreements also contain a choice of law provision, providing
that the Supply Agreements “shall be governed and controlled in all respects by the laws of the
State of Michigan, USA… and all disputes, including interpretation, enforceability, validity, and
construction, shall be determined under the law of the State of Michigan, without regard to any
conflict of law provision.” Id. at ¶ 20. Michigan public policy “favors the enforcement of
contractual forum-selection clauses and choice-of-law provisions.” Turcheck v. Amerifund
Financial, Inc., 725 N.W.2d 684, 688 (Mich. Ct. App. 2006). Importantly, Kyocera has not
challenged the enforceability of either provision in its pleadings or responses.
Kyocera’s antitrust defense will be stricken; first, because it does not meet the
requirements of Kaiser Steele and Kosuga to be proper for this Court’s determination as part of
this breach of contract action, and second, because even if Kyocera obtained a final judgment
from the Tokyo District court, the Supply Agreements’ forum selection provision and choice of
law provision would preclude this Court from recognizing the foreign judgment.
IV.
The final substantive motion before the Court at this time is Kyocera’s motion for partial
judgment on the pleadings. ECF No. 38. Federal Rule of Civil Procedure 12(c) provides that
“[a]fter the pleadings are closed—but early enough not to delay trial—a party may move for
judgment on the pleadings.” The standard of review for a motion for judgment on the pleadings
is the same as that applied to motions to dismiss under Rule 12(b)(6). See, e.g., Lindsay v. Yates,
498 F.3d 434, 438 (6th Cir.2007); Morgan v. Church's Fried Chicken, 829 F.2d 10, 11 (6th
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Cir.1987) (noting that where a Rule 12(b)(6) defense of failure to state a claim upon which relief
can be granted is raised by a Rule 12(c) motion for judgment on the pleadings, the Court must
apply the standard for a Rule 12(b)(6) motion). Accordingly, “[f]or purposes of a motion for
judgment on the pleadings, all well-pleaded material allegations of the pleadings of the opposing
party must be taken as true, and the motion may be granted only if the moving party is
nevertheless clearly entitled to judgment.” JPMorgan Chase Bank, N.A. v. Winget, 510 F.3d 577,
581 (6th Cir.2007) (internal citations and quotation marks omitted).
In its Rule 12(c) motion, Kyocera requests that the Court dismiss Hemlock’s claim for
accelerated damages. Kyocera argues that the accelerated damages provisions in the Supply
Agreements do not approximate Hemlock’s actual damages but instead serve as unenforceable
penalties. Hemlock responds that it is not in fact seeking accelerated termination damages in this
litigation. Resp. to Mot. for J. on Pleadings, ECF No. 48.
Because Hemlock is not seeking accelerated damages at this time, and because this
Court’s jurisdiction extends only to actual cases and controversies, Kyocera’s motion for
judgment on the pleadings will be denied. If and when Hemlock seeks accelerated damages,
Kyocera may renew its challenge to the accelerated damage provisions.
V.
Also before the Court is Hemlock’s motion to quash non-party subpoenas issued by
Kyocera. The scope of discovery is governed by Federal Rule 26(b)(1), which as of December
1, 2015 provides:
Unless otherwise limited by court order, the scope of discovery is as follows:
Parties may obtain discovery regarding any nonprivileged matter that is relevant
to any party’s claim or defense and proportional to the needs of the case,
considering the importance of the issues at stake in the action, the amount in
controversy, the parties’ relative access to relevant information, the parties’
resources, the importance of the discovery in resolving the issues, and whether the
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burden or expense of the proposed discovery outweighs its likely benefit.
Information within this scope of discovery need not be admissible in evidence to
be discoverable.
Fed. R. Civ. P. 26(b)(1). The 2015 Committee notes explain that “[t]he parties and the court have
a collective responsibility to consider the proportionality of all discovery and consider it in
resolving discovery disputes.” Rule 26(b)(2)(C) provides additional limitations on the scope of
discovery, explaining that the Court must limit the extent of discovery if it determines that “the
discovery sought is unreasonably cumulative or duplicative, or can be obtained from some other
source that is more convenient, less burdensome, or less expensive;”.
Under Federal Rule 45(d)(3), upon a timely motion, the Court must quash or modify a
subpoena that “requires disclosure of privileged or other protected matter, if no exception or
waiver applies” or a subpoena that “subjects a person to an undue burden.” Rule 45(d)(3)(A)(iii)(iv). The Court may quash or modify a subpoena that requires disclosing trade secrets or other
confidential information. Rule 45(d)(3)(B).
Hemlock moves to quash non-party subpoenas served on the following attorneys in
companion cases: (1) Daniel Malone, the attorney for Deutsche Solar GmbH in Deutsche Solar
and attorney for both Green Energy Technology, Inc. and Tatung Co. in Hemlock Semiconductor
Corporation v. Green Energy Technology Inc., et al., No. 13-020593 (Mich. Cir. Ct. Saginaw
Cnty. 2013); (2) Larry Elliot, attorney for Deutsche Solar in Deutsche Solar; and (3) David Tsai,
attorney for both Green Energy and Tatung in Green Energy.
Hemlock argues that the
documents Kyocera seeks are subject to protective orders entered by the Courts in both Deutsche
Solar and Green Energy, and that Hemlock has a privilege and proprietary interest in the
documents. Hemlock further argues that the subpoenas should be quashed under Rule 45(d)(3),
since Hemlock is in possession of all of the documents and depositions sought by Kyocera and
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because Kyocera has already requested the exact same documents from Hemlock pursuant to
Rule 34. In opposition to Hemlock’s motion, Kyocera argues that its third-party requests are
proper because the documents have already been gathered and produced and because Hemlock
has indicated that it will force Kyocera to engage in motion practice before it will produce the
materials in question.
A.
“[A] party generally has no standing to seek to quash a subpoena directed to a non-party.”
Systems Products and Solutions, Inc. v. Scramlin, 2014 WL 3894385 *7 (E.D. Mich. August 8,
2014) (internal quotations and citation omitted). A party establishes standing if it carries its
burden of persuading the court that it has a claim of personal interest or privilege in the material
sought by the third-party subpoenas. Id. Here, because the relevant documents relate to lawsuits
in which Hemlock was a party and are covered by protective orders, Hemlock has shown
privilege conferring standing.
B.
At this time, Kyocera’s non-party subpoenas will be provisionally quashed for two
reasons: First, because the information it seeks from the non-parties is covered by protective
orders, thus making it privileged material under Rule 26(b)(1); second, because the subpoenas
are unreasonably cumulative or duplicative under Rule 26(b)(2)(C) and Kyocera is able to obtain
the same material directly from Hemlock. If Hemlock makes the discovery process unduly
expensive, inconvenient or burdensome, then this order will be revisited and Kyocera may be
allowed to reissue subpoenas to the non-parties.
VI.
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The final motion currently before this Court is Kyocera’s motion to compel discovery.
This motion will be addressed during the Rule 16(b) scheduling conference scheduled below.
VII.
Accordingly, it is ORDERED that Plaintiff Hemlock’s motion to dismiss Defendant
Kyocera’s counterclaims, ECF No. 21, is GRANTED.
It is further ORDERED that Defendant Kyocera’s counterclaims Nos. I-VII are
DISMISSED.
It is further ORDERED that Plaintiff Hemlock’s motion to strike Defendant Kyocera’s
Japanese antitrust defense, ECF No. 22, is GRANTED.
It is further ORDERED that Defendant Kyocera’s Japanese antitrust defense,
Affirmative Defense No. 10, is STRICKEN.
It is further ORDERED that Defendant Kyocera’s motion for partial judgment on the
pleadings, ECF No. 38, is DENIED without prejudice.
It is further ORDERED that Plaintiff Hemlock’s motion to quash non-party subpoenas,
ECF No. 24, is PROVISIONALLY GRANTED.
It is further ORDERED that the non-party subpoenas issued to Attorneys Daniel Malone,
Larry Elliott, and David Tsai are QUASHED.
It is further ORDERED that a Rule 16(b) scheduling conference is SCHEDULED for
March 9, 2016 at 4:00 PM at the United States Courthouse, 1000 Washington Avenue, Bay
City, Michigan, 48708.
s/Thomas L. Ludington
THOMAS L. LUDINGTON
United States District Judge
Dated: January 6, 2016
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PROOF OF SERVICE
The undersigned certifies that a copy of the foregoing order was served
upon each attorney or party of record herein by electronic means or first
class U.S. mail on January 6, 2016.
s/Michael A. Sian
MICHAEL A. SIAN, Case Manager
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