Optima Tobacco Corporation v. U.S. Flue-Cured Tobacco Growers, Inc. et al
Filing
113
ORDER - The court GRANTS IN PART and DENIES IN PART defendants' motions for summary judgment 90 , 92 , and DISMISSES U.S. Flue-Cured as a defendant. Optima Tobacco, U.S. Flue-Cured, and UETA shall engage in a settlement conference with United States Magistrate Judge Gates. The court will set the case for trial by separate order. Signed by District Judge James C. Dever III on 9/30/2019. (Sellers, N.)
IN THE UNITED STATES DISTRICT COuRT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DMSION
No. 5:16-CV-889-D
OPTIMA TOBACCO CORPORATION,
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Plaintiff,
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v.
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U.S. FLUE-CURED TOBACCO
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GROWERS, INC., and UETA, INC.,
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Defendants. )
ORDER.
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On November 9, 2016, Optima Tobacco Corporation ("Optiina Tobacco;, or ''plaintiff'') filed
a complaint against U.S. Flue-Cured Tobacco Growers, Inc. ("U.S. Flue-Cured") and UETA, Inc.
(''UETA"; collectively, "defendants") for breach of contract [D.E. 1, 8]. On November 30, 2018,
defendants moved for summary judgment [D.E. 90, 92] and filed memoranda in support [D.E. 91-1,
93], a joint statement ofmaterial facts [D.E. 91-2], and appendices [D.E. 91, 94]. On December 21,
2018, Optima Tobacco responded in opposition [D.E. 97-1] and filed a counter-statement ofmaterial
facts [D.E. 97-2] and an appendix [D.E. 97]. On January 4, 2019, defendants replied [D.E.
100-102]. As explained below, the court grants in part and denies in part defendants' motions for
summary judgment and dismisses U.S. Flue-Cured from the action.
I.
Optima Tobacco is a Florida corporation that brokers or distributes tobacco products, but
does not manufacture its own products. See [D.E. 91-2] ~ 14; Judge Dep. [D.E. 91-68] 23. James
Judge ("Judge") and Daniel Makepeace ("Makepeace") own Optima Tobacco. See [D.E. 91-2] ~
14; Judge Dep. [D.E. 91-68] 7. Judge runs Optima Tobacco from his home. See [D.E. 91-2] ~ 14;
Judge Dep. [D.E. 91-68] 23. U.S. Flue-Cured is a North Carolina corporation.that makes privatelabel cigarettes and other tobacco products. See [D.E. 91-2] ~ 11; [D.E. 40]
ft 1-2.
UETA is a
Panama corporation that sells cigarettes and other products in duty-ftee stores in both North and
South America. See [D.E. 91-2] ~ 13; [D.E. 39] mf 1-3.
In 2007, Aaron Gewirtz ("Gewirtz'') called Judge on UETA's behalf to find a manufacturer
tomakeprivate-labelcigarettesforUETA to sell. See [D.E. 91-2] ~ 15; Ex. 40 [D.E. 91-31] 11-12;
Ex. 39 [D.E. 91-30]
~
20; Judge Dep. [D.E. 91-68] 11, 13. Judge contacted Stephen Daniel
("Daniel"), the Executive Vice President of U.S. Flue-Cured in 2007, about the business
opportunity. However, Judge did not disclose that UETA would be the ultimate distributor. See
[D.E. 97-2] ~ 16; Daniel Dep. [D.E. 91-72] 11-12. Daniel responded positively to Judge because
collecting payment from Optima Tobacco would be less risky than attempting to collect payment
directly from a foreign distributor, like UETA. See Daniel Dep. [D.E. 91-72] 11-13.
Two oral contracts resulted. See [D.E. 91-2] ~ 17. UETA orally agreed to order private-label
cigarettes from Optima Tobacco. See id.; Judge Dep. [D.E. 91-68] 17. Once UETA had placed an
orderwithOptimaTobacco,OptimaTobaccowouldsendamanufacturingordertoU.S.Flue-Cured.
See [D.E. 91-2] ~ 17. U.S. Flue-Cured would manufacture the cigarettes and sell them to Optima
Tobacco, which would then resell the cigarettes to UETA. See id. Although Optima Tobacco
initially handled shipping, UETA soon handled all shipping itself. See id.; Judge Dep. [D.E. 91-68]
24. Optima Tobacco paid U.S. Flue-Cured $1.85 per carton and paid Gewirtz $0.06 per carton as
a commission. See [D.E. 91-2]
~
19. UETA paid Optima Tobacco $2.16 per carton. See id.
Moreover, UETA paid Optima Tobacco before Optima Tobacco paid U.S. Flue-Cured. See [D.E.
97-2] ~24.
From 2007 to 2012, Optima Tobacco grossed approximately $0.25 per carton under the oral
contracts. Cf. [D.E. 91-2]
~
19. Optima Tobacco occasionally negotiated price increases from
UETA so that it could pay U.S. Flue-Cured more while maintaining its margin. See id.; Judge Dep.
[D.E. 91-68] 25-26. However, neither UETA nor U.S. Flue-Cured knew how much profit Optima
Tobacco was earning, and UETA and U.S. Flue Cured did not deal with each other directly. See
2
[D.E. 91-2] ~ 20; Ex. 40 [D.E. 91-31] 11-12. During this time-period, the 1:Win oralcontracts were
terminable at will. See [D.E. 91-2] ~22; [D.E. 97-2] ~22; Ex. 40 [D.E. 91-31] 22; JudgeDep. [D.E.
91-68] 26; Daniel Dep. [D.E. 91-72] 15.
Opt;ima Tobacco initially was responsible for creating the private-label cigarette design (i.e.,
packaging, filtration, etc.) and worked with K.ne:X, a separate company which Makepeace owned,
to do so. See [D.E. 91-2] ~ 18; Judge Dep. [D.E. 91-68] 16, 19. Optima Tobaeco also created the
Sheriff, Patrol, and Smoking Gun brands of private-label cigarettes.·. See [D.E. 97-2] ~ 19; Judge
Dep. [D.E. 91-68] 19-20. Among these three brands, the Sheriff brand comprised most of what
UETA ordered. See [D.E. 97-2] ~ 19; [D.E. 91-63] 7.
UETA became uncomfortable with this informal arrangement, and in 2010, requested that
the parties draft a written contract to define their rights and duties. See [D.E. 91-2] mf 25-26; Judge
Dep. [D.E. 91-68] 23; Daniel Dep. [D.E. 91-72] 15. 1 UETA made this request because it wanted to
have an exclusive agreement with U.S. Flue-Cured. See [D.E. 91-20] ~ 26; Daniel Dep. [D.E. 91-72]
15. U.S. Flue-Cured also wanted a written contract because Optima Tobacco represented a
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substantial portion ofits business. See [D.E. 91-2] ~ 26.2 Thus, on JUn.e 27, 2011, U.S. Flue-Cured
circulated a first draft of a written contract that all three parties. would sign in 2012 (''the 2012
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agreement"). See id.~ 29; Ex. 14 [D.E. 91-11] 1-16.
The parties dispute several aspects ofthe negotiating process that led to the 2012 agreement.
According to defendants, Optima Tobacco ''tried to keep the two 'contracts' se~arate in an effort to
keep its margins confidential" because Optima Tobacco knew that "UETA (if not also [U.S. FlueCured]) would be upset" about Optima Tobacco's high margins. [D.E. 91-2] ~ 27. Defendants also
assert that Judge falsely told UETA that UETA could not contact U.S. Flue-Cured directly. See id.~
1
The parties drafted a memorandum of understanding dated April 11·, 2011. See Ex. 10
[D.E. 91-8]. However, the parties d;id not sign this document. See Judge Dep~ [D.E. 91-68] 52.
2
The parties dispute precisely how much of U.S. Flue-Cured's business this arrangement
produced. Compare [D.E. 91-2] ~ 26, with [D.E. 97-2] ~ 26.
3
28; Ex. 2 [D.E. 94-2]; Ex. 72 [D.E. 94-72]. Jn contrast, Optima Tobacco claims that U.S. FlueCured knew Optima Tobacco's margins but did not care. See [D.E. 97-2] ~ 21; Daniel Dep. [D.E.
91-72] 57 (stating that making tobacco is the "easiest thing'' in the tObacco industry while selling it
is the ''hardest thing''). Although Optima Tobacco concedes thatit did not want UETA and U.S.
Flue-Cured to contact each other directly, Optima Tobacco claims that it feared that defendants
would exclude it from the arrangement, not that it wanted to keep its margins secret. See [D.E. 97-2]
~ 28;
cf. Judge Dep. [D.E. 91-68] 44.
Defendants retained counsel to negotiate and draft the 2012 agreement, which went through
several rounds of revisions. See [D.E. 91-2]
~
30; Bxs. 13-30 [D.E.
91-13~91-30]
(e-mails and
draftsofthe2012agreement). Optima Tobaccodidnotretaincounsel. See [D.E. 91-2] ~31; Judge
Dep. [D.E. 91-68] 28-29. Instead, Judge personally reviewed all proposed.modifications to the
drafts of the 2012 agreement and accepted all changes that UETA or U.S. Flue-Cured proposed.
See Judge Dep. [D.E. 91-68] 28-29. Judge "had complete faith that the contract would be fine" and
did not ''recall specifically offering edits to the contract." Id. at 29..
The parties highlight the drafting process of several clauses in the 2012 agreement. First, the
draft agreements only contained one price per carton labeled as the "UETA Purchase Price." [D.E.
91-2] ~ 32. It was initially Un.clear to the parties, however, whether the "uETA Purchase Price" was
the price that UETA paid to Optima Tobacco or the price that Op~ TobSCC? paid to U.S. FlueCured. See id.~ 33. Second, the ''whereas" clauses of the drafts did not mention Optima Tobacco.
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See id.~ 34. Third, an introductory clause stated that Optima Tobac.c~. ~~a J1tlrty. See [D.E. 97-2]
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~ 34; Ex.
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30 [D.E. 91-26] 1; Ex. 16 [D.E. 91-13] 3. Fourth, although an earlier draft provided that
U.S. Flue-Cured would pay Optima Tobacco a percentage commission, see Ex. 17 [D.E. 91-14]
9-10, U.S. Flue-Cured replaced that term with an express statement that U.S. Flue-Cured would not
be responsible for compensating Optima Tobacco under the 2012 agreement. See [D.E. 91-2] ~ 35;
Ex. 18 [D.E. 91-18] 9; Ex. 30 [D.E. 91-26] 8; Judge Dep. [D.E. 91-68] 60; Gewirtz Dep. [D.E. 91-
4
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70] 58--60; Daniel Dep. [D.E. 91-72] 18. Finally, UETA proposed that the parties change the
modification clause and termination clause of the draft to read that "both parties" could modify the
2012 agreement and that "either party'' could terminate the 2012 agreement, respectively. See id.~
36; Ex. 22 [D.E. 91-18] 13, 16.3 Before this change, theterminationclausehadread that"anyparty''
could terminate the 2012 agreement. See [D.E. 91-2] ~ 36.
During negotiations, Judge told UETA that U.S. Flue-Cured required at least $2.16 percarton
from Optima Tobacco. See id.~ 37; Ex. 20 [D.E. 91-16]. Judge also stated that U.S. Flue-Cured
was receiving offers as high as $2.25 per carton from Mexican distributors. See Ex. 20 [D.E. 91-16];
Ex. 21 [D.E. 91-17] 2. According to defendants, these representations were false. See [D.E. 91-2]
~
37. Optima Tobacco disputes that Judge's representations were false and claims that Judge-
~lieved U.S.
Flue-Cured had received such offers from Mexican distributors. See [D.E. 97-2] ~
37; see also Daniel Dep. [D.E. 91-72] 38; Judge Dep. [D.E. 91-68] 62--63. Moreover, Optima
Tobacco claims that it requested a price increase from UETA so that it could increase its payments
to U.S. Flue-Cured. See [D.E. 97-2] ~ 37.
In September 2012, the parties executed the 2012 agreement. See [D.E. 91-2] ~ 38; Ex. 30
[D.E. 91-26] 16. Among other provisions, the 2012 agreem~t contained a five-year term, subject
to renewal for a sixth year. See Ex. 30 [D.E. 91-26] 10. The 2012 agreement stated that UETA
would exclusively purchase cigarettes through the arrangement. See id. at 2-3, 19. UETA also
promised to pay Optima Tobacco $2.24 per carton for the Sheriff brand of cigarettes and $2.16 per
carton for the other two brands. See id. at 22.
The 2012 agreement's introductory clause stated that Optima Tobacco was a party. See id.
at 1. Article 7 imposed various duties on Optima Tobacco, including that Optima Tobacco act as
a "customer service liaison" between UETA and U.S. Flue-Cured. See id. at 6-7. Article 7 also
3
Optima Tobacco disputes that the parties intended these modifications to exclude Optima
Tobacco. See [D.E. 97-2] ~ 36.
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expressly stated that U.S. Flue-Cured would not be responsible for compensating Optima Tobacco
forits performance under the 2012 agreement. See id. at 7. Under Article 12.3, "either party'' could
terminate the 2012 agreement in the event of material
breac~
impossibility of performance, or
frustration ofpurpose. See id. at 10-11. Furthermore, the 2012 agreement expressly superseded all
previous oral or written agreements. See id. at 15 ~ 14.12; [D.E. 91-2] mf 38(ni), (n).
After the 2012 agreement, Optima Tobacco and U.S. Flue-Cured continued to use an oral
agreement to define their relationship. See id. mf 39, 48; Daniel Dep. [D.E. 91-72] 20; Morgan Dep.
[D.E. 91-71] 19. This oral agreement was terminable at will, and U.S. Flue-Cured could demand
a higher price at anytime. See [D.E. 91-2] mf 39, 47; [D.E. 97-2] ~39; Judge Dep._[D.E. 91-68] 27,
90; Daniel Dep. [D.E. 91-72] 28, 44.
Optima Tobacco did not disclose to UETA the specific price :that it paid U.S. Flue-Cured.
See [D.E. 91-2]~40;Ex.121[D.E.91-.64] 3.4 However, U.S.Flue-CuredknewthepricethatUETA
paid to Optima Tobacco, and Judge told Daniel that the difference between_~e two prices was
"Optima's operating profit from which [Optima Tobacco] pay[s] Aaron [9ewirtz] and other
expenses." Ex. 31[D.E.91-27]; see Ex. 96 [D.E. 91-54]. Danieldidnotshare-the2012agreement
with anyone else at U.S. Flue-Cured, other than an employee who worked dire~tly under him. See
[D.E. 91-2] ~ 41.
Shortly after executing the 2012 agreement, Daniel asked Judge to clarify whether, underthe
2012 agreement, Optima Tobacco would pay U.S. Flue-Cured $2.24 per carton. See id.~ 42; Ex.
31 [D.E. 91-27]; Daniel Dep. [D.E. 91-72] 20, 45. Judge clarified that $2.24 per carton was what
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UETA would pay Optima Tobacco, not what Optima Tobacco would pay U.S. Flue-Cured. See
4
UETA claims that it "could not discern how (or even whether)" Optima Tobacco received
compensation under the 2012 agreement. [D.E. 91-2] ~ 40. Optima Tobacco concedes-that UETA
did not know the specific price that U.S. Flue-Cured charged Opmpa Tobacco for cigarettes, but
argues that UETA knew that Optima Tobacco received some form of compensation from the
arrangement between the parties. See [D.E. 97-2] ~ 40. UETA doei; not contest that it knew that the
arrangement generated some form of compensation for Optima Tobacco. See [D.E. 100-2] 15.
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[D.E. 91-2] ~ 42; [D.E. 97-2] ~ 42. Under Optima Tobacco and U.S. Flue-Cured's contemporaneous
oral agreement, Optima Tobacco would pay $1.95 per carton to U.S. Flue-Cured. See [D.E. 91-2] ~
49. Accordingly, after executing the 2012 agreement, Optima Tobacco's margin was $0.29 per
carton. Cf. id. W42, 49. As before the 2012 agreement, Optima Tobacco always received payment
from UETA before Optima Tobacco paid U.S. Flue-Cured. See [D.E. ?7-2] ~ 45; Judge Dep. [D.E.
91-68] 37-38.
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In2013, U.S. Flue-Cured terminated Daniel. See [D.E. 91~2] ~49;JudgeDep. [D.E. 91-68]
31-32; Daniel Dep. [D.E. 91-72] 25; Thompson Dep. [D.E. 91-73] 8. However, U.S. Flue-Cured
continued to sell private-label cigarettes to Optima Tobacco at $1.95per carton. See [D.E. 91-2] ~
49; Morgan Dep. [D.E. 91-71] 16--17. At this time, UETA was U.S. Flue-Cured's largest customer.
See Morgan Dep. [D.E. 91-71] 15.
In September2013, Ron Morgan ("Morgan") replaced Daniel and became the new Executive
Vice President of U.S. Flue-Cured. See [D.E. 91-2]
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50; Morgan Dep. [D.E. 91-71] 7, 12;
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Thompson Dep. [D.E. 91-73] 9. Morgan sought to make U.S. Flue-Cured more profitable and to
improve U.S. Flue-Cured'soperations. SeeMorganDep. [D.E. 91-71] 14--16;. see also Thompson
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Dep. [D.E. 91-73] 15. Morgan soon had concerD$ about_U.S. Flue-ymed's relationship with Optima
Tobacco and UETA because he suspected that U.S. Flue-Cured was losing money on· the
arrangement. See Morgan Dep. [D.E. 91-71] 14--16. Morgan requested an internal financial
analysis of the arrangement, which confirmed that U.S. Flue.;Cured was losllig money under the
arrangement and that U.S. Flue-Cured needed to receive $2.19 per carton to ~e the arrangement
profitable for U.S. Flue-Cured. See id. at 20; MacDonald Aff. [D.E. 91-76] W7-8.
In July 2014, Morgan found a copy of the 2012 agreement In D~el's_files. See [D.E. 91.
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2] ~ 51; Morgan Dep. [D.E. 91-71] 15; ThompsonDep. [D.E. 91-7~1. 14; Hubb8:fd Dep. [D.E. 91-75]
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9. Previously, Morgan had not known that there was a written agreement gov,eming the business
arrangement among the parties. See [D.E. 91-2] ~ 51; Morgan Dep. [D.E. 91-71] 15 (stating ''no one
7
really had the contract"). Morgan and Donald Hubbard ("Hubbard"), U.S. Flue~Cured' s Purchasing
Manager, understood the 2012 agreement to require OptiJ;na Tobacco to pay U.S. Flue-Cured $2.24
per carton and to renegotiate the rate annually (which had not oec~ed). See [D.E. 91-2] ~ 52;
MorganDep. [D.E. 91-71] 17-18; Hubb~dDep. [D.E. 91-75] 11>-MorganspokewithotherU.S.
Flue-Cured employees and discovered that Daniel told them thatoptim.8. Tob8cco would pay only
$1.95percarton. See [D.E. 91-2]~53;MorganDep. [D.E. 91-71Jl6-17;Danie1Dep. [D.E. 91-72]
20. Thus, after updating Stuart Thompson ("Thompson"), the CEO of U.S. Flue-Cured, Morgan
arranged a meeting with Judge to discuss the parties' arrangement. See [D.E. 91-2]
mf 55-56;
HubbardDep. [D.E. 91-75] 11, 13-15.
OnJu1y24, 2014, MorganandHubbardmetwithJudge. See [D.E. 91-21~ 58; HubbardDep.
[D.E. 91-75] 11, 13-15;Morgan.Dep. [D.E. 91-71] 20, 29,45; JudgeDep; [D.E. 91-68]34-36; Ex.
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89 [D.E. 91-48] 2; Judge AtI. [D.E. 97-3] ~ 6. The parl;ies dispute what happened at the meeting.
According to defendants, Morgan told Judge that the 2012 agre~~t requir~ Optima Tobacco to
pay $2.24 per carton to U.S. Flue-Cured an;d demande
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F.3d 175, 184 (4th Cir. 2013); see U.S. ex rel. Carter v. Hallibµrton_Co., 866 F.3d 199, 210 n.6 (4th
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Ci,r.2oi7);MurrayE:q.ergyCorp. v.A~.ofEnvt'l.Pr~wctiqnA,gency, 861F.3d529,537n.5 (4th
Cir. 2017); vonRosenbergv.. Lawrence, 849F.3d163, 167 n.1 (4th Cir. 2017); \Yahl v. Charlest~n
Area Med. Ctr.• Inc., 562 F.3d 599, 617 (4th Cir. 2009); Hexion S~ialty Chems.• Inc. v. Oak-Bark
Corp., No. 7:09-CV-105-D, 2011WL4527382, at *7.....S (E.D.N.C. Sept.28, 2011) (unpublished)
(coll~
cases). This prip.ciple makes sense because a ''party's complaint puts its opponent and
the court on notice of the claitp.s in the case." Hexion Specialty Chems.• Inc., ·2011WL45273 82, at
*8. Thus, to the extent that Optima Tobacco now seeks to allege a c~a,im for breach of contract
against UETA based on Article 8.3 of the 2012 agreement, see Ex. 30 [D.E. 91-26] 7, such a claim
would "requireQ provipg a separate set of facts th.anrequir~ to prove [Optima Tobacco's] original
allegations." vonRosenberg. 948 F.3d at 167 n.1. Opti,ma Tobacco canp.ot amend its complaint
This court's schedulliig order expressly stated that any motion to amend pleadings ''filed after
March 30, 2018, must meet the standards" of Rules 15 and 16 of.the Federal Rules of Civil
Procedure. [D.E. 79] 2. But if "a party could am.end its complai,nt via summary'.'"judgment briefing,
Rules 15 and 16 would be meaningless[.]" H~xion SpecialJ3' Chems., Inc., 2011 WL 4527382, at *8.
Because Optima Tobacco did not properly amend its complaint, the c.oUrt does.not consider Optima
Tobacco's new theory that UETA breached article 8.3 of the 2012 agreement.
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As for Optima Tobacco's claim that the 2012 agreementrequ4"ed UETA to send all purchase
orders to U.S. Flue-Cured through Optima Toba,cco, Article 8.1 stated that "[p]roducts may be
ordered by [UETA] only pursuant to written Purchase Orders submitted to [Optima Tobacco]." Ex.
30 [D.E. 91-26] 7. Viewing the evidence in the light most favorable to Optima Tobacco, UETA
ordered products pursuant to written purchase orders that UETA submitted.directly to U.S. FlueCured in violation ofArticle 8.1. See, e:g., id.; Morgan Dep. [D.E. 91-71] 24, 59; Daniel Dep. [D.E.
91-72] 64; HubbardDep. [D.E. 91-75] 17, 37-38. Genuine issues (>fmaterial fact preclude summary
judgment. Accordingly, the court denies UETA's motion for summary judgment as to liability on
Optima Tobacco's breach of contra.ct claim.
2.
As for Optima Tobacco's breach of contract claim. against U.S. ·Flue-Cured, Article 6 ofthe
2012 agreement did not requjre U.S. Flu~-Cvred to operate exclusively through Optima Tobacco.
See.Ex. 30 [D.E. 91-26] 6. Article 8.1 sim.iladyonly.required UETA, not U.S. Flue-Cured, to send
purchase orders to Optima Tobacco. See id. S:t 7. Furthermore, Article 7.2 expressly stated that:U.S.
Flue-Cured was not ''responsible for the paynient of compensation to [Optima Tobacco]." Id. Thus,
no reasonable jury could find that U.S. Flue-Cmed breached any duties to Optima Tobacco u,nder
the 2012 agreementas alleged in the complaint. Rather, the oral agreement between U.S. Flue-Cured
and Optima Tobacco defined U.S. Flue-Cured's duties to Opti1na Tobacco, and the oral agreement
was term,inable at will. See [D.E. 91-2] W39, 47; [D.E. 97-2] ~ 39, 47. Moreover, on March 24,
2015, U.S. Flue-Cured termjnated its oral agreeqient with Optima Tobacco. See [D.E. 91-2] ~ 83;
Ex:. 34 [D.E. 94-34] (stating that "Optima will no longer be involved with the purchase orders,
invoices or other matters related to the" 2015 agreen;ient); [D.E. 101-3] ~ 17.9 Accordingly, for U.S.
Flue-Cured to "invoic[e] and sbipO cigarettes directly to" UETA did not breach any duties that U.S.
9
To the extent that Optima Tobacco n9w argues that U.S. Flue-Cured did not terminate the
oral agreement, see [D.:g. 97-1] 20, no rational jury could so find.
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Flue-Cured owed to Optima Tobacco under the 2012 agreement. Compl. [D.E. 8] ~ 59.
In opposition to this conclusion, Optima Tobacco suggests that U.S. Flue-Cured breached
the 2012 agreement by interfering with Optima Tobacco's ability to negotiate with UETA in good
faith as required by article 8.3 ofthe2012agreement. See [D.E. 97-1] 9, 18-19;Ex. 30 [D.E. 91-26]
7. As with Optima Tobacco's claim based on article 8.3 against UETA, Optima Tobacco cannot
amend its complaint through summary-judgment briefing. See Halliburton Co., 866 F.3d at 210 n.6;
Murray Energy Corp., 861 F.3d at 537 n.5; vonRosenberg. 849 F.3d at 167 n.1; S. Walle at
Broadlands Homeowner's Ass'n. Inc., 713 F.3d at 184; Hexion Specialty Chems.• Inc., 2011WL
4527382, at •t. "This theory [of breach of contract] differs from that alleged in the complaint."
vonRosenberg, 849 F.3d at 167 n.1. Moreover, Optima Tobacco appears to concede that it would
be "illogicalO" to read article 8.3 to apply to U.S. Flue-Cured. [D.E. 97-1] 18. Thus, the court
declines to consider any claim against U.S. Flue-Cured under article 8.3 of the 2012 agreement.
Even viewingthe evidence in the light most favorable to Optima Tobacco, no reasonable jury
could find that U.S. Flue-Cured breached the 2012 agreement as alleged in OJ?titiia' s complaint. See
Sale v. State Highway & Pub. Works Comm'n, 242 N.C. 612, 619, 89 S.E.2d 290, 296 (1955) ("In
the obligations assumed by a party to a contract is found his duty, and his failure to comply with the
duty constitutes the breach."); Samostv. Duke Univ., 226N.C. App. 514, 518, 742 S.E.2d257, 260
(2013) (same); cf. Hackerv. Wells Fargo Bank N.A.,No. 4:15-CV-1~3-BR, 2016 WL 5678341, at
*6 (E.D.N.C. Sept. 30, 2016) (unpublished). Accordingly, the court grant$ U.S. Flue-Cured' s motion
for summary judgment.10
B.
UETA argues that Optima Tobacco cannot recover lost profits. See [D.E. 93] 12-19. Under
North Carolina law, the party seeking lost profits bears the burden ofproof, and.~ meet that burden,
a party ''must prove such losses with reasonable certainty." McNamara v. Wilmington Mall Realty
10
The court does not address U.S. Flue-Cured's remaining arguments.
16
Corp., 121 N.C. App. 400, 407, 466 S.E.2d 324, 329 (1996) (quotation omitted); see Olivetti Com.
v. Ames Bus. Sys.• Inc., 319 N.C. 534, 546, 356 S.E.2d 578, 585 (1987); Castle McCulloch. Inc. v.
Fr~
169N.C.App. 497, 501, 610 S.E.2d416,420 (2005),aff'd, 360N.C. 56, 620 S.E.2d674
(2005) (per curiam); Iron Steamer. Ltd. v. Trinity Restaurant. Inc., 110 N.C. App. 843, 847, 431
S.E.2d 767, 770 (1993); Ross v. Washington Mut. B~ 566 F. Supp. 2d 468, 482-83 (E.D.N.C ..
2008), aff'd sub nomen Ross v. Fed. Dej?Osit Ins. Corp., 625 F.3d 808 (4th Cir. 2010). Whether a
party's evidence meets the ''reasonable certainty'' standard is a question of law for the court. See
Olivetti, 319 N.C. at 548, 356 S.E.2d at 586-87; Iron Steamer, 110 N.C. App. at 848, 431 S.E.2d at
770-71. Although absolute certainty or a precise figure is not required, "damages for lost profits will
not be awarded based on hypothetical or speculative forecasts." Castle McCulloch, 169 N.C. App.
at 501, 610 S.E.2d at420 (quotation omitted); see Pipkin v. Thomas & Hill. Inc., 298 N.C. 278, 287,
258 S.E.2d 778, 785 (1979); Beroth Oil Co. v. Whiteh~ 173 N.C. App. 89, 95, 618 S.E.2d 739,
744-45(2005);McNamara, 121 N.C.App.at407-10,466S.E.2dat329--32;IronSteamer, llON.C.
App. at 847-48, 431 S.E.2d at 770-71. A party seeking to recover lost profits cannot do so if the
party's estimate "is based on assumptions that are purely speculative in Dature." Iron Steamer. Ltd.,
110 N.C. App. at 849, 431 S.E.2d at 771.
Lost profits, like other breach of contract damages, must have been "in the contemplation of
thepartieswhenthecontractwasmade." Weyerhaeuser Co. v. GodwinBldg. SupplyCo.,292N.C.
557, 560--61, 234 S.E.2d 605, 607 (1977) (quotation omitted); see Perfecting Serv. Co. v. Prod. Dev.
& Sales Co., 259 N.C. 400, 415, 131 S.E.2d 9, 21 (1963). Whether the parties contemplated lost
profits "depend[s] upon the information communicated or the knowledge of the parties at the time
and the reasonable foreseeability of such damages." Troitino v.
Goo~
225 N.C. 406, 412, 35
S.E.2d 277, 281-82 (1945) (collecting cases). Lost profits must be "the natural and proximate result
of the breach." Mosley & Mosley Builders. Inc. v. Landin Ltd., 87 N.C. App. 438, 446, 361 S.E.2d
608, 613 (1987); see Perkins v. Langdon, 236 N.C. 159, 170, 74 S.E.2d 634, 643 (1953); Media
17
Network. Inc. v. Long Haymes Carr. Inc., 197 N.C. App. 433, 457, 678 S.E.2d 671, 687 (2009); S.
Bldg. Maintenance. Inc. v. Osborne, 127N.C. App. 327, 331-32, 489 S.E.2d 892, 895-96 (1997).
·.
"While difficult to determine, dam.ages may be established with reasonable certainty with the
aid of expert testimony, economic and financial data, market surveys and analysis, and business
records of similar enterprises." Iron Steamer, llON.C. App. at 849, 431 S.E.2d at 771 (quotation
omitted); see Ross, 566 F. Supp. 2d at 482. There is ''no bright-line rule in determining what amount
of evidence is sufficient to establish lost profits." Byrd's Lawn & Landscaping. Inc. v .. Smith, 142
N.C. App. 371, 377-78, 542 S.E.2d 689, 693 (2001); see Beroth Oil Co., 173 N.C. App. at 95, 618
S.E.2d at 744. However, "[p]rofit estimates which are speculative or dep~dent on contingent
circumstances not supported in the record are not admissible to.· prove . . ... dam.ages." Silicon
·~
·,:
< ..
Knights. Inc. v. Epic Games. Inc., No. 5:07-CV-275-D, 2011 WL-6748518, at ~10 (E.D.N.C. Dec.
·.·
22, 2011) (unpublished) (quotations and alterations omitted); see;
'-·
e.g~, ()gle~by
v. Gen. Motors
Com., 190 F.3d 244, 250 (4th Cir. 1999); Tyger Const. Co. v. Pensacola Const: Co., 29 F.3d 137,
142-43 (4th Cir. 1994); Boucher v. U.S. Suzuki Motor Com., 73 F.3d 18, 21-22 (2d Cir. 1996)
("Where lost future earnings are at issue, an expert's testimony should be excluded as speculative
if it is based on unrealistic assumptions regarding the plaintiff's future prospects."); Joy v. Bell
Helicopter Textron. Inc., 999 F.2d 549, 568-69 (D.C. Cir. 1993); In re Air Crash Disaster atN.
Orleans. La., 795 F.2d 1230, 1234-35 (5th Cir. 1986).
In response to UETA's motion for sumniary judgment an4.in support of its claim for lost
profits, Optima Tobacco relies on Dr. Jonathan Strickland's ('.~Strickland'] expert report and
deposition.
See [D.E. 97-2]
ft
99-100.
Strickland opined that Optima Tobacco sustained
$2,671,079 in lost profits between March 2015 and September 2017 because ofUETA's alleged
breach of the 2012 agreement. See [D.E. 91-2]
~
102; [D.E. 97-2]
~
102; Ex. 117 [D.E. 91-63] 4.
Strickland's opinion rests on speculative assumptions that do not fit ili.-e facts· of this case.
. .
.
First, Strickland assumed that Optima Tobacco would have derived $0.29 per carton in profits under
18
the 2012 agreement only because Optima Tobacco's counseltold him to do so. See E~. 136 [D.E.
91-74] 5, 7, 8-9, 11, 22, 39. However, this hypothetical profit rate conflicts with Strickland's
understanding ofthe undisputed facts. See id. at 9; cf. Martin v. Bimbo Foods Bakeries Distribution.
Inc., No. 5:14-CV-17-BR, 2016 WL 4621075, at *2-3 (E.D.N.C. Sept. 6, 2016) (unpublished).
Indeed, Strickland conceded that there is ''no question" that Optima Tobacco made less than $0.29
per carton in profits between July 2014 and March 2015. Ex. 136 [D.E. 91-74] 54-55; cf. Martin,
2016 WL 4621075, at •2; Pharmanetics, Inc. v. Aventis Pharmaceuticals. Inc., No. 5:03-CV-817FL(2), 2005 WL 6000369, at *13 (E.D.N.C. May 4, 2005) (unpublished), aff'd, 183 F. App'x 267
(4th Cir. 2006) (per curiam.) (unpublished). Second, Strickland conceded that whether UETA or U.S.
Flue-Cured would have increased or decreased their prices after July 2014 was "speculation both
ways." Strickland Dep. [D.E. 91-74] 38; see, e.g., [D.E. 94-73]. Thus, Strickland's analysis
depends "on contingent circumstances not supported in the record[.]" Silicon Knights. Inc., 2011
WL 6748518, at •10. Because Strickland's "lost profit estimates for [Optima Tobacco's damages]
are based on unreliable and speculative forecasts[,]" Optima Tobacco's "claims for lost profits ...
are too speculative to be determined with reasonable certainty." Id. at *11; see, e.g., Martin, 2016
WL 4621075, at *2-3; Stillwagon v. Innsbrook Golf & Marina LLC, No. 2:13-CV-18-D, 2014 WL
5871188, at *S-6 (E.D.N.C. Nov. 12, 2014) (unpublished); Castle McCulloch, 169 N.C. App. at
501--02, 610 S.E.2d at 420--21.
''Unsupported speculation is not sufficient to defeat a summary judgment motion." Felty v.
Graves-Humphreys Co., 818 F.2d 1126, 1128 (4th Cir. 1987); see Francis v. Booz. Allen &
Hamilton. Inc., 452 F.3d 299, 308 (4th Cir. 2006); Bouchat v. Bait. Ravens Football Club. Inc., 346
F.3d 514, 522 (4th Cir. 2003); Beale, 769 F.2d at 214. Because Strickland's opinion is based on
unsupported speculation, it does not create a genuine issue of material fact. See Daubert v. Merrell
Dow Pharmaceuticals. Inc., 509 U.S. 579, 596 (1993) (If the trial court "concludes that the scintilla
of evidence presented supporting a position is insufficient to allow a reasonable juror to conclude
19
that the position" is true, then ''the court remains free ... to grant summary judgment.").
Jn opposition tO this conclusion, Optima Tobacco argues that Judge, Morgan, and Hubbard
intended the price increase that reduced Optima Tobacco's margin to $0.19 per carton to be
temporary or contingent upon UETA's agreement to increase what UETA paid to Optima Tobacco.
See Ex. 40 [D.E. 91-31] 9-10; HubbardDep. [D.E. 91-75] 38-39,45-46. Even viewing the record
in the light most favorable to Optima Tobacco, it remains speculative whether and to what degree
UETA or U.S. Flue-Cured would have changed their prices. Optima Tobacco also did not produce
evidence concerning when (if ever) the price would have reverted to $1.95 per carton. Accordingly,
even viewing the evidence in the light most favorable to Optima Tobacco, the cqurt grants summary
judgment to UETA on Optima Tobacco's lost profits claim. 11 Optima Tobacco may seek nominal
damages from UETA at trial. See HBC Adventures. LLC v. Holt MD Consulting. Inc., No. 5:06CV-190-F, 2012 WL 4483625, at *6 (E.D.N.C. Sept. 27, 2012) (unpublished).
m.
Jn sum, the court GRANTS IN PART and DENIES IN PART defendants' motions for
summary judgment [D.E. 90, 92], and DISMISSES U.S. Flue-Cured as a defendant. Optima
Tobacco, U.S. Flue-Cured, and UETA shall engage in a settlement conferen~ with United States
Magistrate Judge Gates. The court will set the case for trial by s~parate order.
SO ORDERED. This M._ day of September 2019.
11
The court does not reach UETA's remaining arguments concerning lost profits.
20
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