BENCHMARK ELECTRONICS, INC., ET AL. V. CREE, INC.
Filing
55
MEMORANDUM OPINION AND ORDER - Benchmark's motion for summary judgment (Doc. 24) is GRANTED with respect to its breach of contract claim (first cause of action), and Benchmark shall have and recover the following from Cree: (1) $587,229.06 in unpaid invoices plus interest; (2) $286,371.44 for excess and obsolete components plus interest; and (3) $457,105.38 for excess amounts paid for consigned components plus interest, with interest on these sums accruing from the date the complaint was filed, May 25, 2016. Benchmark's motion for summary (Doc. 24) is GRANTED as to Cree's counterclaims for violation of the UDTPA (third claim for relief), and GRANTED IN PART as to Cree's counterclaim for conversion as to the XB-G LED bulbs (fourth claim for relief), and those claims are DISMISSED WITH PREJUDICE. Benchmark's motion for summary judgment is otherwise DENIED. Cree's motion for partial summary judgment (Doc. 28) is GRANTED as to Benchmark' s alternative claim for unjust enrichment (second cause of action) and DENIED as to Benchmark's contract claim (first cause of action) as well as to Cree's breach of contract counterclaim (first claim for relief), Cree's unjust enrichm ent counterclaim (third claim for relief), and Cree's breach of the covenant of good faith and fair dealing counterclaim (second claim for relief). The action will proceed to trial on Cree's counterclaims for breach of contract (first claim for relief), breach of the covenant of good faith and fair dealing (second claim for relief), unjust enrichment (fifth claim for relief, in the alternative), and conversion as to the XT-E LED bulbs (fourth claim for relief). Signed by CHIEF JUDGE THOMAS D. SCHROEDER on 1/18/2018. (Marsh, Keah)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
BENCHMARK ELECTRONICS, INC.,
and BENCHMARK ELECTRONICS de
MEXICO, S. de R.L. de C.V.,
)
)
)
)
)
)
)
)
)
)
)
Plaintiff,
v.
CREE, INC.,
Defendant.
1:16-cv-529
MEMORANDUM OPINION AND ORDER
THOMAS D. SCHROEDER, District Judge.
This is an action by Plaintiffs, Benchmark Electronics, Inc.
and
Benchmark
(“Benchmark”),
Electronics
seeking
de
recovery
Mexico,
from
S.
de
R.L.
Defendant,
de
C.V.
Cree,
Inc.
(“Cree”), for money allegedly owed in connection with installing
Cree’s lightbulbs into various products.
Cree counterclaims for
recovery, or offset, for component parts it contends Benchmark
either damaged during the manufacturing process or has failed to
return.
Before the court are cross motions for summary judgment.
Benchmark moves for summary judgment on its breach of contract
claim 1 and all of Cree’s counterclaims.
(Doc. 24.)
Cree contends
that Benchmark materially breached the parties’ contract and moves
1
While Benchmark moves for summary judgment “on all claims” (Doc. 24 at
1), it does not argue in favor of its claim for unjust enrichment (second
cause of action).
for partial summary judgment as to (1) its breach of contract (or,
alternatively, unjust enrichment) counterclaim; (2) its breach of
good
faith
and
fair
Benchmark’s claims.
dealing
counterclaim;
(Doc. 28.)
and
(3)
all
of
The motions have been fully
briefed (Docs. 25, 32, 34, 29, 31, and 35) and are ready for
decision.
For the reasons set forth below, the court grants in
part and denies in part each party’s motion.
I.
BACKGROUND
The facts, viewed in the light most favorable to the non-
moving parties in the cross motions for summary judgment, establish
the following:
A.
The Parties’
Documents
Letter
of
Authorization
and
Related
In 2012, Cree, an equipment manufacturer of light-emitting
diode (“LED”) lamps and components, issued a Request for Quotes
(“RFQ”) seeking estimates from contract manufacturers for the
manufacture, testing, packaging, and shipping of driver boards and
LED boards, two independent components within Cree’s “Bengal”
product line of lamp products (the “Bengal Project”).
¶¶ 4-5; Doc. 26-1 at 40-41.)
An LED board is a printed circuit
board mounted with 10 or 20 LED bulbs.
32-2 ¶ 15.)
(Doc. 32-2
(Doc. 26-1 at 41, 47; Doc.
As part of the proposed arrangement, Cree would
provide the contract manufacturer with LED bulbs on consignment to
construct the LED boards.
(Doc. 26-1 at 17; Doc. 27-20 at 56.)
2
Consistent with its general practice, Cree communicated a “zero
cost” for the consigned LED bulbs in the bill of materials that
was provided as part of the RFQ.
(Doc. 26-1 at 37-38.)
The RFQ
did not specify any rate for loss or destruction of consigned LED
bulbs during the manufacturing process.
On
June
12,
2012,
responded to Cree’s RFQ.
Benchmark,
(Doc. 26-1 at 41-42.)
a
contract
manufacturer,
(Doc. 26-1 at 45-46; Doc. 26-11.)
As
part of its proposal, Benchmark provided a per-unit price for LED
boards.
(Doc. 27-21 ¶¶ 4-6).
Benchmark’s pricing model for the
LED boards accounted for the bill of materials provided by Cree,
which listed the cost of the consigned LED bulbs as zero.
27-21 ¶ 4.)
(Doc.
The pricing model included a line item for “Scrap
(and Other MOH),” which factored in the cost of scrapped components
as well as the cost of material overhead (“MOH”) for managing the
various components. (Doc. 27-20 at 36-38; Doc. 27-21 ¶ 5.) 2
While
Benchmark used a price of $0.10 to calculate the MOH in its final
estimate (Doc. 27-21 ¶ 5; Doc. 27-20 at 40-41; Doc. 26-11 at 14
(noting price of $0.15 was used in original proposal)), the parties
dispute whether and to what extent the cost of scrapped LED bulbs
were considered in Benchmark’s RFQ response.
2
(Doc.
27-21 ¶ 6;
In its response to the RFQ, Benchmark defined MOH as the cost
“associated with the ordering receiving, inspection, and kitting of the
LEDs required for production.” (Doc. 26-11 at 14.)
3
Doc. 27-20 at 38; Doc. 29-3 ¶ 15.) 3
Bengal Project to Benchmark.
The
parties
began
Cree subsequently awarded the
(Doc. 29-3 ¶ 9.)
negotiating
a
Contract
Manufacturing
Agreement (“CMA”) and exchanged draft agreements. (Doc. 32-2 ¶ 10;
Doc. 26-1 at 35-36.)
On June 29, 2012, Benchmark returned a
redlined draft of the CMA to Cree.
(Doc. 29-3 ¶ 11; id. at 39.) 4
The draft CMA set out an initial two-year term (Doc. 29-3 at 65)
and
contained
a
Materials
Consignment
Agreement
(“MCA”)
that
shifted the risk of loss to Benchmark for the consigned material
in its possession (Doc. 29-3 ¶ 11; id. at 65, 76).
The relevant
section of the draft MCA provides:
Contract Manufacturer shall be responsible for any
loss, damage, or theft of Consigned Materials for any
reason while in Contract Manufacturer’s possession;
provided that Contract Manufacturer shall not be
responsible for actual defective or non-conforming
Consigned Materials if Contract Manufacturer accounts to
Cree for such Consigned Materials and follows Cree’s
instructions for return or disposal thereof. Contract
Manufacturer shall maintain property insurance that
3
Cree contends that the line item for “Scrap (and other MOH) . . . set
forth the price per unit allocated to scrapped LED components and the
MOH, or materials overhead, of managing and storing an inventory of
consigned LED components.” (Doc. 29-3 ¶ 15.) Benchmark’s Federal Rule
of Civil Procedure 30(b)(6) witness, Calvin Clemmons, testified that
Benchmark only considered the cost of “scrap” as it relates to the
printed circuit boards and assigned no value to the bulbs because Cree
had communicated a “zero dollar price” in its costed bill of materials.
(Doc. 27-20 at 38, 40-41; Doc. 27-21 ¶ 6 (“Had Plaintiffs known that
Cree was not providing the LEDs at zero cost, but would instead attempt
to charge $0.5684 for each XTE LED (10 or 20 LEDs would be incorporated
into a single board), Plaintiffs would have never agreed to accept only
$0.72 per completed LED Board.”).)
4
According to the Cree, this draft CMA was the last redline draft that
Benchmark returned to Cree. (Doc. 29-3 ¶ 11; Doc. 32-2 ¶ 10.)
4
provides adequate coverage for third-party property
consigned to Contract Manufacturer and stored or used on
Contract Manufacturer’s premises.
(Doc. 29-3 at 76.)
The draft CMA also required Benchmark to
produce regular production reports, which would track Benchmark’s
inventory of consigned materials and report any loss of consigned
materials to Cree.
(29-3 at 52, 79.)
However, neither the CMA
nor MCA identified a designated scrap rate or attrition rate for
the consigned LED bulbs.
(See Doc. 35 at 9.) 5
Even though contract negotiations for the CMA were still
ongoing, the parties continued to move forward with their business
relationship.
In November 2012, Cree issued its first purchase
order to Benchmark and agreed to pay $0.72 per LED board.
27-21 ¶ 6.)
(Doc.
On December 23, 2012, the parties entered into a
Letter of Authorization (“LOA”), which authorized Benchmark to
purchase materials and components to manufacture the LED boards.
(Doc. 8 ¶ 11; Doc. 26-4.) 6
At the time, the parties were still in
the process of negotiating a CMA.
(Doc. 32-2 ¶ 10; Doc. 26-4 at
5
The draft CMA specified that the provision of services would be
authorized by individual purchase orders issued by Cree. (Doc. 29-3 at
50-51.) Benchmark’s representative, Calvin Clemmons, similarly stated
that, in his experience, original equipment manufacturers did not
generally communicate “yield targets” for products in written
agreements, but communicated such targets during weekly and monthly
quality meetings. (Doc. 27-20 at 25-27.)
6
While Cree refers to the date of the agreement as December 2, 2012, in
several sworn statements (Doc. 29-3 ¶ 10; 32-2 ¶ 9), the LOA is dated
December 20, 2012, and the document indicates that Cree executed it on
December 23, 2012. (Doc. 26-4; Doc. 29-3 at 36-37.)
5
4.)
The LOA provided that “[t]he parties are currently in the
process of discussing and negotiating a Contract Manufacturing
Agreement (“CMA”) that will supersede this Letter of Authorization
(“LOA”).”
(Doc. 26-4 at 4.)
However, the LOA also provides that
“If the parties do not execute an [sic] CMA within one (1) year of
the final execution of this LOA, then Benchmark has the right to
invoice Customer for all Components purchased pursuant to this
LOA, whether or not they are Excess and/or Obsolete Components.”
(Doc. 26-4 at 4.)
As will be seen, Cree eventually decided to discontinue its
relationship with Benchmark before a CMA was ever executed.
(Doc.
1 ¶ 15; Doc. 8 ¶ 15; 26-1 at 35-36.)
B.
The Parties’ Course of Performance
1.
Benchmark’s Manufacture of LED Boards
Following
the
execution
of
the
LOA,
Benchmark
began
manufacturing Bengal products, including the LED boards at issue.
(Doc. 1 ¶ 16; Doc. 32-2 ¶ 11.)
Benchmark would purchase raw
materials and components to incorporate into the Bengal products.
(Doc. 26-4.) Cree also provided Benchmark with consigned materials
under two different types of arrangements.
(Doc. 27-20 at 55.)
At the outset, Cree provided Benchmark with certain materials it
had purchased in anticipation of this project.
57.)
(Doc. 27-20 at 55-
Cree attributed a price to these products in its bill of
materials.
(Doc. 27-20 at 55-57; 26-1 at 16-17.)
6
As Benchmark
consumed these materials, Benchmark would issue a purchase order
and Cree would invoice Benchmark for the materials.
at 55-56; Doc. 32-2 ¶ 37.)
(Doc. 27-20
The parties would regularly track the
consumption of these materials on a monthly basis.
(Doc. 27-20 at
76-77.)
In
addition,
manufacture
arrangement.
the
Cree
LED
provided
boards
Benchmark
under
a
with
LED
separate
(Doc. 26-1 at 17; Doc. 27-20 at 56.)
bulbs
to
consignment
Cree obtained
tape from third-party manufacturers and applied individual LED
bulbs to strings of reels, which it then shipped to Benchmark.
(Doc.
26-1
at
92-93;
Doc.
27-20
at
102.)
As
part
of
the
manufacturing process, Benchmark’s machinery picked individual LED
bulbs from the reels and installed them into the LED boards.
26-1 at 59-60.)
(Doc.
Benchmark would then complete performance tests
on the LED boards before packaging and shipping them to Cree.
(Doc. 27-20 at 125-26.)
Cree did not attribute a price to the
consigned LED bulbs in the bill of materials, nor did it ever
invoice Benchmark for the bulbs.
(Doc. 27-20 at 56, 58-59; Doc.
32-2 ¶ 37 (noting it was not Cree’s standard practice to invoice
contract manufacturers for consigned LEDs.)
However, Benchmark
regularly accounted for the LED bulbs it received in weekly and
monthly reports.
(Doc. 32-2 ¶¶ 16-17; Doc. 29-3 ¶¶ 16-18; Doc.
27-20 at 120, 166-67.)
A substantial number of consigned LED bulbs were lost to
7
attrition or scrapped during the manufacturing process.
3 at 126; Doc. 34-1 at 2).
(Doc. 29-
Due to improper specifications of the
reels and malfunctions of the machinery, individual LED bulbs were
not properly picked and placed onto circuit boards at times. (Doc.
26-1
at
21-22;
“attrition”).)
Doc.
27-20
at
125
(describing
this
loss
as
After the LED boards were manufactured, Benchmark
removed and discarded LED bulbs that did not function properly
during a performance test.
(Doc. 27-20 at 125-26 (describing this
loss as “rework”); Doc. 31-1 ¶ 5.)
In addition, Benchmark would
discard LED bulbs that were incorporated into LED boards that did
not function properly or meet the proper specifications.
(Doc.
27-20 at 126 (describing this loss as “scrap”).)
2.
Benchmark’s Reporting
Consigned LED Bulbs
of
Scrap
Rates
for
the
Benchmark provided Cree with weekly and monthly Inventory
Reconciliation Reports (“IRRs”), which provided an accounting of
Benchmark’s inventory of consigned LED bulbs.
135; Doc. 27-20 at 77, 265.) 7
(Doc. 26-1 at 131,
In the IRRs, Benchmark reported the
number of consigned bulbs it had received, incorporated into final
products, returned to Cree, retained as inventory, and scrapped or
7
Beginning in May of 2013, Cree requested that Benchmark provide IRRs
on a weekly basis. (Doc. 26-1 at 119.) Toward the end of the parties’
relationship, Benchmark provided IRRs on a less frequent basis as its
production declined, but Cree did not object to this development. (Id.
at 135-36 (noting the transition from weekly to monthly reports related
to the decline in production and stating “I don’t think there was a
specific conversation on that topic”).)
8
otherwise lost during the manufacturing process.
(See, e.g., Doc.
27-15 at 4; Doc. 27-18 at 12; Doc. 27-19 at 9.)
Benchmark would
generally calculate the attrition rate by counting the number of
bulbs that remained on the reel at the end of production, as well
as the number of bulbs that were incorporated into LED boards or
otherwise
discarded
after
the
initial
manufacturing
process.
(Doc. 27-20 at 101-02, 105-06.) 8
Around May of 2013, Cree requested that Benchmark transition
from using XT-E LED bulbs to XB-G LED bulbs in the Bengal LED
boards.
(Doc. 26-1 at 105-06.)
As part of this transition,
Benchmark prepared a final inventory reconciliation report for the
XT-E LED bulbs, which used the term “Delta” to refer to consigned
bulbs
that
were
scrapped
manufacturing process.
or
lost
to
attrition
during
the
(Doc. 27-20 at 119; Doc. 29-3 ¶ 31.) 9
Benchmark provided Cree with a presentation, which outlined the
8
Benchmark would regularly vacuum out the bulbs that dropped into the
machine and store them in its warehouse. (Doc. 27-20 at 105-06, 125.)
At this point, Cree acknowledged that the LEDs could not be put to
productive use and did not request that they be returned. (Doc. 26-1
at 132.)
In a February 2014 email with Cree, a Benchmark employee
acknowledged that Benchmark had “2 huge bins” of LEDs that had been
vacuumed out of the machines and asked whether Benchmark should return
the LEDs to Cree or dispose of them on site. (Doc. 29-1 at 81; Doc. 2720 at 100-02.)
When Cree inquired about the number of scrapped LED
bulbs, Benchmark’s employee suggested weighing them in order to calculate
their number. (Doc. 29-1 at 80.) However, it was not a standard practice
for Benchmark to calculate the attrition rate in this fashion. (Doc.
27-20 at 102-04.)
9
Benchmark contends that this delta report “was the format, apparently,
the teams mutually agreed upon” to use for the final reconciliation
report. (Doc. 27-20 at 120.)
9
calculation of the delta value for the consigned inventory of XTE LED bulbs in the final reconciliation report.
115-16; Doc. 27-13.)
(Doc. 26-1 at
In this presentation prepared in conjunction
with the final report, Benchmark represented two different delta
values: (1) a “Delta” value that reflected the number of consigned
LED bulbs scrapped during various stages of the manufacturing
process; and (2) a separate “DELTA” value that represented the sum
of this previous “Delta” value and an additional flat two percent
rate of “Attrition.”
(Doc. 27-13 at 4; Doc. 26-1 at 114-16.)
In
an internal email dated May 13, 2013, Cree summarized the “delta
explanation” provided for the “Delta” value in the presentation,
and Cree acknowledges that Benchmark “accurately reported the
magnitude of the scrapped XT-E LEDs throughout its relationship up
until that time . . . .”
(Doc. 32-2 ¶¶ 36, 44.) 10
While Cree
invoiced Benchmark for other consigned components at the end of
the reconciliation, it did not invoice Benchmark for any consigned
LED bulbs.
(Doc. 26-1 at 116.) 11
Beginning in May of 2013, Benchmark began reporting a “delta”
value for its inventory of consigned LED bulbs within its weekly
10
However, Cree maintains that the delta calculation in the May 2013
final reconciliation report is “entirely separate” from the “delta”
calculations in the IRRs, noting that the “delta” calculation referred
to within the emails referred only to a “delta” value that did not
include attrition. (Doc. 32-2 ¶ 44; Doc. 32 at 8-9.)
11
Cree maintains that it was not a standard practice to regularly invoice
contract manufacturers for consigned components as opposed to other
consigned inventory. (Doc. 32-2 ¶ 37.)
10
and monthly IRRs.
(Doc. 29-3 ¶¶ 31-35; Doc. 32-2 ¶¶ 29, 33; see
Doc. 29-3 at 120 (noting revised “delta” calculations)).)
The
term “delta” does not have a standard meaning within the industry.
(Doc. 29-3 ¶ 30; Doc. 27-20 at 30-31, 212.)
Benchmark described
the “delta” values as “the gross differences generally between the
LEDs Cree shipped to Plaintiffs and the LEDs that were either
shipped back to Cree in final products, returned to Cree in raw
form, or the LEDs Plaintiffs have on hand that Cree did not want
returned.”
“delta”
(Doc. 27-21 ¶ 10; Doc. 27-20 at 30 (describing the
value
as
“any
components
that
were
lost
during
the
manufacturing process, plus any parts that were replaced as a
result of yield fallout at test, for example”).)
In addition to providing a “delta” value, Benchmark included
a section entitled “Scrap History,” which calculated the number of
consigned LEDs that were discarded whenever an entire LED board
was scrapped. (Doc. 11 ¶ 22; Doc. 27-20 at 126; see, e.g., Doc.
32-2
at
report).)
82,
88
(8/25/14
report);
Doc.
27-19
at
9
(12/29/14
While the formula for calculating the “delta” value was
available within the Microsoft Excel spreadsheet provided as part
of the report (Doc. 26-1 at 119), Benchmark did not provide any
additional explanation for the “delta” value within its weekly and
monthly reports. (See, e.g., Doc. 32-2 at 82, 88 (8/25/14 report);
Doc. 27-19 at 1, 9 (12/29/14 report)).
The reported “delta” value
fluctuated from month to month, at times even decreasing, as
11
Benchmark accounted for different reels of consigned LED bulbs in
production.
(Doc. 27-20 at 136-38.)
Once the XT-E LED bulbs were fully phased out in mid-2013,
Benchmark reported a “delta” value of 1,607,518, which represents
an overall attrition rate of approximately 3.7%. (Doc. 29-3 at
121; Doc. 32-2 at 82, 88.)
Benchmark reported this “delta” value
in each of its subsequent IRRs.
19 at 9 (12/29/14 report).)
the
“delta”
value
reported
(Doc. 29-3 at 121; see Doc. 27-
Between May 2014 and January 2015,
for
the
XB-G
LED
bulbs
rose
dramatically, increasing from 1,013,510 to 4,052,477. (Doc. 29-3
¶¶ 35-36; Doc. 29-3 at 120.)
At the conclusion of the parties’
relationship, Benchmark prepared a “Delta” report in January of
2015, which reported a negative “delta” value of 4,394,757 XB-G
LED bulbs and denoted that the “delta” value translates to a rate
of -2% for “attrition and rework.”
(Doc. 29-3 at 126; Doc. 34-1
at 2.)
The parties dispute whether Benchmark provided an adequate
explanation of the term “delta” as it was used in the IRRs prior
to the issuance of the January 2015 report.
26-1 at 115-16.)
(Doc. 8 ¶ 40; Doc.
While Cree disputes that Benchmark ever provided
an adequate explanation for the “delta” value prior to this time,
Cree never inquired as to what “delta” represented until at least
the middle of 2014.
(Doc. 26-1 at 116, 120 (“I don’t have personal
knowledge that somebody at Cree asked Benchmark what the delta
12
number on this spreadsheet represented. I would’ve hoped somebody
would’ve asked.”); Doc. 8 ¶ 33; Doc. 32-2 ¶ 35; Doc. 27-20 at 129
(“[N]o one had ever contacted me from Cree or internally saying,
you know, we’re not understanding anything about LEDs.”).)
During the course of the parties’ relationship, Cree remained
actively
involved
in
monitoring
and
supervising
Benchmark’s
production of its Bengal products, particularly as it related to
the LED components.
Cree worked with Benchmark to develop the
content and format of the weekly IRRs.
14 at 1; Doc. 26-19 at 1.)
(Doc. 26-1 at 90; Doc. 26-
Cree representatives remained in close
contact with Benchmark regarding production issues that arose
during the manufacturing process.
27-20 at 119-20.)
(See Doc. 29-3 ¶¶ 23-26; Doc.
Cree employed a local engineer who would
regularly visit Benchmark’s manufacturing facility in Guadalajara,
Mexico, to help address any engineering issues.
94
(noting
that
Cree
employed
a
“local
(Doc. 26-1 at 93-
Cree
Mexico
product
engineer” who would visit the Guadalajara plant “from time to time”
to “support any request that we had that required some local onsite visibility”); Doc. 27-20 at 260 (noting a Cree employees
visited approximately every three months).)
Cree communicated frequently with Benchmark regarding the
production of LED boards as well as the scrap levels of the
consigned LED bulbs in question.
¶¶ 22-24.)
(Doc. 29-3 ¶¶ 22-24; Doc. 32-2
Cree requested that Benchmark provide weekly and
13
monthly reports regarding its inventory of consigned LED bulbs.
(Doc. 29-3 at 89.) During weekly and monthly meetings, the parties
discussed measures to improve the efficiency and reduce the scrap
rate of the consigned LED bulbs.
(Id. ¶ 24; see id. at 90-93, 95-
104, 109-11.)
Beginning at least in April of 2013, Cree communicated a
“waste goal” of 0.5% to Benchmark for the consigned LED bulbs.
(Id. at 90-93, 95-104, 109-11; Doc. 31-1 ¶¶ 4-6.)
In an April 22,
2013 email, a Cree employee acknowledged that Benchmark had an
attrition rate of 2% as a result of packaging issues, but stated
that “[o]nce the package issue is resolved Cree’s expatiation [sic]
is the Attrition Rate will move below .0005% [sic] . . . .” (Doc.
29-3 at 114; Doc. 26-1 at 94-95.) 12
An April 25, 2013 email from
Cree to Benchmark references Benchmark’s scrap rate and attaches
a Microsoft Excel spreadsheet with a column listing the “% Waste
Goal” of 0.5% for consigned LED components during the initial
12
Cree’s Rule 30(b)(6) witness, David Power, testified that he had had
no discussions with Benchmark regarding any target attrition rate as of
April 22, 2013. (Doc. 26-1 at 104-05; Doc. 27-6 at 1.) Benchmark’s
Rule 30(b)(6) witness, Calvin Clemons, testified that he was not aware
of any target attrition rate prior to receiving this email
correspondence. (Doc. 27-20 at 94.) He further characterized Cree’s
reference to the 0.5% attrition rate as an “aspirational goal” as opposed
to a maximum scrap allowance. (Id.) Benchmark argues that this rate
referred only to LED bulbs that were lost during the initial
manufacturing process, as opposed to a maximum attrition rate. (Doc.
31-1 ¶¶ 4-6.)
14
manufacturing process.
(Doc. 29-3 at 90-93.) 13
However, the
parties dispute whether Cree ever communicated a maximum attrition
rate for the consigned LED bulbs to Benchmark during either the
RFQ process or at any other time in the parties’ relationship.
(Doc. 27-21 ¶ 9; Doc. 29-3 ¶ 20; Doc. 32-2 ¶ 20.)
Cree experienced several of its own production issues with
its LED bulbs that caused higher attrition rates. (See Doc. 26-1
at 33-35, 61-64.)
For example, in March 2014, Cree had an issue
with packaging of the LED bulbs that went on for “a few months,
three months.”
(Doc. 26-1 at 33-34, 59-61.)
Beginning in late
December 2013, Cree had an issue with the “pocket sizes” on the
tape containing the bulbs, which went on for several months and
resulted in a rate of 35,000 defective LED parts per million
(3.5%).
(Doc. 26-1 at 59-62, 64; Doc. 26-18.)
And Benchmark
experienced production issues in June 2014 because the LED bulbs
were sticking in their packaging as a result of the heat and
humidity.
(Doc. 26-1 at 24-25; Doc. 29-3 ¶ 25.)
As a result,
Benchmark reported a scrap rate for consigned LED bulbs well in
excess of 0.5% on multiple occasions.
(Doc. 8 ¶ 23; Doc. 29-3 at
114 (noting attrition rate of 2% as a result of packaging issues),
110 (noting an attrition rate of 1.112%).)
13
While Cree worked with
However, the worksheets and other related materials refer to “used
parts,” “placed parts,” and “SMA,” which are associated with the initial
surface mount portion of the manufacturing process as opposed to all
stages in the manufacturing process in which consigned LEDs could have
been lost.
(See Doc. 29-3 at 90-93; Doc. 31-1 ¶¶ 4-6.)
15
Benchmark to address these production issues (Doc. 8 ¶¶ 23-24;
Doc. 26-1 at 21-22), it never sought to recover the cost of any
bulbs in excess of the alleged scrap rate during the parties’ twoyear business relationship (Doc. 26-1 at 16-17, 116). 14
Cree did
not invoice Benchmark for consigned LED bulbs or communicate the
cost it would assess for them until after Cree notified Benchmark
it would be terminating its relationship.
(Id. at 16-17, 27, 116;
Doc. 27-21 ¶ 7.) Cree contends it was not its practice to regularly
invoice contract manufacturers for consigned LEDs as opposed to
other consigned inventory.
3.
(Doc. 32-2 ¶ 37.)
Termination of the Parties’ Relationship
In early 2015, Cree informed Benchmark that it planned to
terminate
the
parties’
contract manufacturer.
agreement
and
(Doc. 8 ¶ 22.)
transition
to
another
Around this time, Cree
raised questions about the calculation of the “delta” value,
alleging that nearly 6 million consigned LED bulbs were unaccounted
for in the IRRs.
(Doc. 29-1 at 82, 86-87; 26-1 at 23-24.)
At the
conclusion of the parties’ relationship, Cree prepared a Consigned
Inventory Reconciliation and End of Life Summary (“EOL Summary”),
which stated it owed Benchmark certain amounts for outstanding
invoices, excess and obsolete components, and excess consigned
14
Indeed, Cree “forgave Benchmark’s obligation to purchase scrap LEDs
in excess of 0.5% allowance from time to time.” (Doc. 8 at 8, ¶¶ 2324; Doc. 26-1 at 21-22.)
16
materials, totaling $1,333,193.
(Doc. 26-5 at 1.) 15
However, Cree
sought to offset these amounts, seeking to recover the cost of the
“[u]naccounted
calculation.
LEDs”
(Id.)
listed
in
Benchmark’s
final
“delta”
Cree attributed a cost of $0.5684 for each
XT-E LED bulb and $0.3767 for each XB-G LED bulb but concedes that
these prices were not communicated to Benchmark during the course
of the parties’ relationship.
(Doc. 29-3 ¶¶ 47-48; Doc. 26-1 at
27.)
4.
Benchmark’s Remaining Inventory of Consigned LED
Bulbs
After Benchmark transitioned to manufacturing LED boards with
XB-G LED bulbs in 2013, Benchmark retained an inventory of 395,022
XT-E LED bulbs.
(Doc. 27-21 ¶ 13.) 16
The parties dispute whether
Benchmark returned the XT-E LED bulbs to Cree in March 2014.
David
Power, Cree’s Rule 30(b)(6) witness, could not recall whether Cree
requested that Benchmark return the remaining inventory of XT-E
bulbs after Cree transitioned to XB-G bulbs.
(Doc. 26-1 at 112.)
15
The EOL Summary was prepared by Doug Stevens, Cree’s Director of
Operations for Consumer Lighting Products, and stated that Cree owed
Benchmark the following amounts: (1) $587,229 for the outstanding
accounts payable; (2) $457,105 for consigned inventory reconciliation;
and (3) $288,859 for the excess and obsolete inventory. (Doc. 26-5 at
1; Doc. 26-1 at 33.) Cree’s Rule 30(b)(6) witness did not dispute that
the individual amounts listed in the EOL Summary were owed to Benchmark.
(Doc. 26-1 at 31-33; Doc. 26-5 at 1.)
16
This amounts conforms to the “on hand” inventory for XT-E LED bulbs
that was reported in Benchmark’s January 2015 “Delta” Report. (Doc. 2721 at 8.) Benchmark claims that it stopped updating the report after
completing the transition to XB-G LEDs in June of 2013. (Id. ¶ 13.)
17
Benchmark contends it returned the XT-E bulbs to Cree’s facility
located in Durham, North Carolina, and has provided shipping
documents and proof of delivery.
(Doc. 27-21 ¶ 13; id. at 12-
15.) 17 Cree contends that the package that arrived at Cree’s Durham
facility did not contain the LED bulbs in question.
(Doc. 32 at
10, 18-19.)
Following
the
conclusion
of
the
parties’
relationship,
Benchmark retained an inventory of 199,588 XB-G LED bulbs.
11 ¶¶ 49-51; Doc. 27-21 ¶ 12.)
(Doc.
In June 2015, Benchmark claims it
offered to return excess and obsolete material, which it contends
included the inventory of XB-G bulbs, but that Cree refused to
accept them.
C.
(Doc. 27-21 ¶ 12; id. at 10.)
Procedural History
Benchmark filed this action on May 25, 2016, alleging that
Cree breached the parties’ agreement or, in the alternative, was
unjustly enriched by failing to compensate Benchmark for its
products and services.
(Doc. 1 ¶¶ 29-30, 34-35.)
17
Benchmark seeks
A pro-forma invoice with the invoice number GSJ261024 indicates that
the XT-E LEDs are to be shipped to Cree.
(Doc. 27-21 at 12.)
The
invoice contains the same three XT-E part numbers listed as “on hand”
inventory in the IRR but denotes slightly different quantities for each
part number.
(Compare Doc. 27-21 at 12 with id. at 8.)
A shipment
instruction label with a matching tracking number notes that a pallet
was to be shipped to Cree’s address.
(Doc. 27-21 at 13.)
The
documentation from the shipper indicates that four pallets were delivered
to Cree’s headquarters, including the pallet associated with invoice
number GSJ261024, and Cree acknowledged receipt of the shipment on
March 13, 2014. (Doc. 27-21 at 14.)
18
to recover $1,330,705.88: (1) $587,229.06 in unpaid invoices (Doc.
1
¶
23;
Doc.
1-1);
(2)
$286,371.44
for
excess
and
obsolete
components (Doc. 1 ¶¶ 14, 24; Doc. 1-2); and (3) $457,105.38 for
excess amounts paid for consigned components (Doc. 1 ¶ 25; Doc. 13; Doc. 24 at 2). 18
Cree counterclaimed, as an offset and affirmative claim,
seeking to recover the cost of LED bulbs provided to Benchmark on
consignment for the manufacture of LED boards, as well as damages
associated with Benchmark’s alleged misrepresentation regarding
the
total
number
of
manufacturing process.
bulbs
lost
(Doc. 8.)
to
attrition
during
the
Cree brings the following
counterclaims: (1) breach of contract; (2) breach of the duty of
good faith and fair dealing; (3) violation of North Carolina’s
Unfair and Deceptive Trade Practices Act, N.C. Gen. Stat. § 751.1 (“UDTPA”); (4) unjust enrichment (in the alternative to its
breach of contract counterclaim); and (5) conversion.
(Doc. 8.)
Benchmark now moves for summary judgment on all claims and
counterclaims. (Doc. 24.) Cree moves for partial summary judgment
as to (1) its breach of contract counterclaim (or unjust enrichment
counterclaim, in the alternative); (2) its breach of good faith
and fair dealing counterclaim; and (3) all of Benchmark’s claims.
18
For purposes of summary judgment, Benchmark consents to using the
date the action was filed as the date interest began accruing for each
of its breach of contract claims. (Doc. 24 at 3.)
19
(Doc. 28.)
II.
ANALYSIS
A.
Standard of Review
Summary
judgment
is
appropriate
where
the
pleadings,
affidavits, and other proper discovery materials demonstrate that
no genuine dispute as to any material fact exists and the moving
party is entitled to judgment as a matter of law.
Fed. R. Civ. P.
56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322-33 (1986).
The
party seeking summary judgment bears the burden of initially
demonstrating the absence of a genuine dispute as to any material
fact.
Celotex, 477 U.S. at 323.
“Once the moving party meets
its initial burden, the non-moving party may not rely upon mere
allegations or denials contained in its pleadings, but must come
forward with some form of evidentiary material allowed by Rule 56
demonstrating the existence of a genuine issue of material fact
requiring a trial.”
Ruffin v. Shaw Indus., Inc., 149 F.3d 294,
301 (4th Cir. 1998) (citing Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 249-50 (1986); Celotex, 477 U.S. at 324).
When considering the motion, the court must consider the
evidence and all reasonable inferences therefrom in the light most
favorable to the non-moving party.
Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 587-88 (1986).
There is no issue
for trial unless sufficient evidence favoring the non-moving party
20
exists for a reasonable factfinder to return a verdict in its
favor.
B.
Anderson, 477 U.S. at 249-50, 257.
Benchmark and Cree’s Breach of Contract Claims
Benchmark contends that Cree breached the parties’ agreement
by failing to pay for $1,330,705.88 in products and services.
(Doc. 1 ¶¶ 30, 35; Doc. 24 at 2-3.)
Cree does not contest the
amounts Benchmark claims it is owed but contends that Benchmark
materially breached their agreement by exceeding an agreed-upon
scrap rate for LED bulbs and covering up this fact in its reports
to Cree, thus excusing any contractual obligation by Cree.
29 at 14.) 19
(Doc.
Cree therefore seeks summary judgment in its favor
as to both its breach of contract counterclaim and Benchmark’s
contract claim.
Cree raises breach as both an affirmative defense
and as a counterclaim.
1.
Scope of the Parties’ Agreement
In order to assess the breach of contract claims, this court
must first determine the scope of the parties’ agreement.
The
contract between the parties is governed by Article 2 of the UCC
as it concerns the sale of manufactured goods.
19
N.C. Gen. Stat.
While the amounts listed in the EOL Summary do not exactly correspond
with those alleged in Benchmark’s complaint, Cree has put forward no
evidence to dispute the amounts alleged in Benchmark’s breach of contract
claims. (Compare Doc. 26-5 at 1 with Doc. 1 ¶¶ 23-25.)
21
Ann. § 25-2-102. 20
“The Uniform Commercial Code applies more
liberal rules governing the formation of contracts than the rules
applied under traditional common law.”
Neugent v. Beroth Oil Co.,
149 N.C. App. 38, 45, 560 S.E.2d 829, 834 (2002) (quoting Fordham
v. Eason, 351 N.C. 151, 156, 521 S.E.2d 701, 705 (1999)).
Under
the UCC, “[a] contract for sale of goods may be made in any manner
sufficient to show agreement, including conduct by both parties
which recognizes the existence of such a contract.”
N.C. Gen.
Stat. § 25-2-204(1); id. § 25-2-207(3) (“Conduct by both parties
which recognizes the existence of a contract is sufficient to
establish a contract for sale although the writings of the parties
do not otherwise establish a contract.”).
“Even though one or
more terms are left open a contract for sale does not fail for
indefiniteness if the parties have intended to make a contract and
there is a reasonably certain basis for giving an appropriate
remedy.”
Id. § 25-2-204(3).
Thus, parties may enter into an
enforceable contract even though the price of the goods is not
settled.
Id. § 25-2-305(1).
Under such circumstances, the price
is considered to be a reasonable price at the time of delivery.
20
To the extent that the contract can be construed as a mixed contract
for goods and services, the court finds that the contract is governed
under the UCC because the predominant purpose of the contract is the
sale of manufactured goods as opposed to the “rendition of services,
with goods incidentally involved.” Hensley v. Ray's Motor Co. of Forest
City, 158 N.C. App. 261, 265, 580 S.E.2d 721, 724 (2003) (quoting
Bonebrake v. Cox, 499 F.2d 951, 960 (8th Cir. 1974)).
22
Id.
A court may consider the parties’ course of performance to
supplement or interpret a prior written agreement, id. §§ 25-1303(d), 25-2-202, or infer the existence of an oral agreement.
Neugent, 149 N.C. App. at 45, 560 S.E.2d at 834 (citing N.C. Gen.
Stat. § 25-2-204); Custom Molders, Inc. v. Roper Corp., 101 N.C.
App. 606, 613, 401 S.E.2d 96, 100 (N.C. App. 1991).
“A course of
performance . . . is relevant in ascertaining the meaning of the
parties' agreement, may give particular meaning to specific terms
of the agreement, and may supplement or qualify the terms of the
agreement.”
N.C. Gen. Stat. § 25-1-303(d).
In the absence of an
explicit written agreement, courts have relied on the parties’
course of performance to infer the existence of an oral contract.
Custom Molders, 101 N.C. App. at 613, 401 S.E.2d at 100.
“The elements of a claim for breach of contract are: (1)
existence of a valid contract; and (2) breach of the terms of the
contract.”
B.E.E. Int'l, Ltd. v. Hawes, 381 F. Supp. 2d 488, 493
(M.D.N.C. 2005) (citing Poor v. Hill, 138 N.C. App. 19, 26, 530
S.E.2d 838, 843 (2000)).
Under Article 2, “[t]he buyer must pay
at the contract rate for any goods accepted.”
§ 25-2-607(1).
N.C. Gen. Stat.
A seller may bring an action to recover damages
where a buyer fails to pay a contractual amount as it becomes due.
Id.
§§
25-2-703,
acceptance
of
25-2-709(1).
goods
if
(1)
However,
the
23
a
buyer
nonconformity
may
revoke
“substantially
impairs” the value of the goods and (2) the buyer accepted the
goods without knowledge of the nonconformity and “his acceptance
was reasonably induced either by the difficulty of discovery before
acceptance or by the seller's assurances.”
Id. § 25-2-608(1).
The buyer must revoke his acceptance “within a reasonable time
after the buyer discovers or should have discovered the ground for
it and before any substantial change in the goods which is not
caused by its own defects.”
Id. § 25-2-608(2).
Where a buyer has accepted goods and provided the seller with
adequate notification of the breach, the buyer “may recover as
damages for any nonconformity of tender the loss resulting in the
ordinary course of events from the seller's breach as determined
in any manner which is reasonable.”
Id. § 25-2-714(1).
The
“nonconformity” refers to not only a breach of warranty, but also
any failure on the part of the seller to perform his obligations
under the agreement.
Id. § 25-2-714, cmt. 2.
Consistent with the
buyer’s right to damages, a buyer may notify the seller of his
intention to “deduct all or any part of the damages resulting from
any breach of the contract from any part of the price still due
under the same contract.”
2.
Id. § 25–2–717.
Benchmark’s Breach of Contract Claim
Here, the court finds that the LOA and accompanying documents
support the existence of an enforceable agreement, particularly
when viewed in conjunction with the parties’ course of performance.
24
Even though the LOA represents the only formal written agreement
between the parties, the RFQ and related documents indicate the
parties’ intention to enter into an agreement for the manufacture,
testing, packaging, and shipping of the Bengal products, including
the LED boards.
From the outset, the parties agreed on a price
for the LED boards in question, set forth explicit specifications
for their manufacture, and provided for the procurement of the
necessary materials to complete the project.
Cree concedes that “the LOA is a valid, enforceable, and
binding contract between the parties.”
(Doc. 8 ¶ 32.)
The LOA
expressly provides for the provision and payment of the services
that Benchmark seeks to recover.
(Doc. 26-4.)
Apart from Cree’s
counterclaim associated with the claimed scrap rate, Cree does not
dispute the amount claimed by Benchmark for those services.
Doc. 26-1 at 31-33; Doc. 26-5 at 1.)
(See
Cree contends, nevertheless,
that it is excused from paying on the grounds that Benchmark
materially breached the agreement.
There
is
no
genuine
dispute
(Doc. 29 at 13-14.)
as
to
whether
Benchmark
entitled to recover on its breach of contract claim.
is
Given that
Cree did not express an intent to return any LED boards or provide
evidence that it otherwise repudiated the parties’ agreement prior
to incurring liability for the amounts at issue, Cree’s remedy
under its counterclaim is either an offset to Benchmark’s claim or
for additional damages.
N.C. Gen. Stat. §§ 25-2-714(1), 25-225
717. 21
Therefore, Benchmark is entitled to summary judgment as to
its breach of contract claim.
Further, because there can be no
unjust enrichment claim where there is an express agreement on the
same subject matter, Cree’s motion to dismiss Benchmark’s claim in
the alternative for unjust enrichment (second cause of action)
will be granted.
Whitfield v. Gilchrist, 348 N.C. 39, 42, 497
S.E.2d 412, 415 (1998).
3.
Cree’s Breach of Contract Counterclaim
Cree argues that Benchmark breached the parties’ agreement by
exceeding
an
consigned
LED
agreed-upon
bulbs
used
“scrap
allowance”
in
manufacture
the
of
of
0.5%
the
for
the
lighting
products and failing to compensate Cree for this “Additional Scrap”
and the remaining inventory of consigned LED bulbs retained by
Benchmark.
(Doc. 8 ¶ 61-63.)
Cree seeks to recover $2,868,921,
which it contends represents the cost of (1) 1,607,518 XT-E LED
21
While the tender of LED boards is not necessarily required for Cree
to revoke its acceptance of the goods, Roy Burt Enterprises, Inc. v.
Marsh, 328 N.C. 262, 264, 400 S.E.2d 425, 427 (1991), Cree has not
alleged that it intended to return the LED boards or otherwise revoke
its acceptance of the allegedly defective goods, but rather only sought
to offset its damages associated with Benchmark’s alleged breach of
contract. Cree’s reliance on cases involving anticipatory repudiation
is misplaced, as the evidence indicates that it failed to reject the
goods in question and continued to induce Benchmark to perform under the
parties’ agreement. See Millis Const. Co. v. Fairfield Sapphire Valley,
Inc., 86 N.C. App. 506, 512, 358 S.E.2d 566, 570 (1987) (“The issue of
anticipatory breach does not affect defendant's obligation under its
contracts to pay for work performed, invoiced and approved as of the
date . . . where defendant alleges plaintiff anticipatorily breached its
contracts with defendant.”)
26
bulbs and 4,394,757 XB-G LED bulbs Benchmark allegedly scrapped in
excess of the parties’ “scrap allowance,” and (2) 395,022 XT-E
LEDs and 199,558 XB-G LEDs Benchmark allegedly retained following
the conclusion of the parties’ relationship.
(Id. ¶¶ 57-64.)22
While Cree concedes that the alleged “scrap rate” is not provided
for in the LOA or draft CMA, it argues that the agreement was
subject to a 0.5% allowance based on the parties’ conduct.
8 ¶ 24; Doc. 29 at 9-11.)
(Doc.
Cree relies on the communications
between the parties regarding the attrition rate of LED bulbs,
particularly
those
inventory reports.
surrounding
Benchmark’s
(Doc. 35 at 2-3, 7-9.)
weekly
and
monthly
Cree also relies on
the fact that the draft CMA placed the risk of loss on Benchmark
for consigned LEDs in its possession.
at 76.)
(Doc. 35 at 3-4; Doc. 29-3
Each party has moved for summary judgment as to Cree’s
breach of contract counterclaim.
When viewed in the light most favorable to Cree, the evidence
creates a genuine dispute as to whether the parties agreed to risk
of loss and a scrap rate for the consigned LED bulbs.
As Cree
concedes, the parties never entered any written agreement as to
any designated scrap rate.
(Doc. 32 at 11.)
Even though the LOA
contains a merger clause, the parties’ contemplation of a later
22 Cree alleges that the price of $0.5684 for each XT-E LED bulb and
$0.3767 for each XB-G LED bulb. (Doc. 8 ¶ 55-56.) However, Cree concedes
that the there is a genuine dispute of material fact as to the price of
the LED bulbs in question. (Doc. 35 at 2.)
27
writing to serve as the complete integration of their agreement
avoids the application of the parol evidence rule that might
otherwise preclude the admission of evidence on this issue.
York
v. Health Mgmt. Assocs., Inc., No. 5:10-CV-00094-RLV, 2013 WL
636914, at *6 (W.D.N.C. Feb. 20, 2013).
In addition, neither the
RFQ nor the draft CMA provided for a designated attrition or scrap
rate.
(Doc. 26-1 at 42; Doc. 32-3 at 76.)) 23
During the parties’ two-year relationship, Cree permitted
attrition
occasions.
rates
in
excess
of
this
alleged
rate
on
(Doc. 8, ¶¶ 23-24; Doc. 26-1 at 21-22.) 24
multiple
Cree also
consistently communicated a “zero cost” of the consigned LED bulbs
in its bill of materials (Doc. 27-20 at 56, 58-59) and never sought
to recover the cost of bulbs that exceeded the alleged scrap rate
(Doc. 26-1 at 16, 116; see Doc. 25 at 20-21).
However, a reasonable factfinder could conclude that the
parties’ course of performance indicates that they intended for
23
Cree also points to the fact that the RFQ included a per-unit LED
board price that included a line item for “Scrap (and other [Material
Overhead]).” (Doc. 27-20 at 33, 36-38.) However, Cree admits that it
communicated a “zero cost” for the consigned LEDs for the RFQ submission.
(Doc. 26-1 at 38-39.) Even though Benchmark did factor the cost of the
LEDs into its calculation of material overhead, Benchmark claims it
developed a costing model with a zero attrition rate for the consigned
LEDs. (Doc. 26-1 at 41-42, 55, 96-97.)
24
It is unclear how Cree accounted for those instances it contends it
forgave Benchmark’s obligation to pay for scrap, when it seeks to recover
the total number of LEDs contained in the final “delta” report issued
by Benchmark. (See Doc. 25 at 8; Doc. 27-21 ¶ 11 (noting the “delta”
reports did not account for instances in which Cree “forgave” the alleged
scrap rate).)
28
Benchmark to assume the risk of loss for the consigned LED bulbs
in its possession.
The draft CMA submitted by Benchmark provided
that it would assume the risk for the loss of consigned LED bulbs
in its possession “for any reason.”
(Doc. 29-3 at 76.)
The
parties also agreed that Benchmark would file regular inventory
reports and keep Cree apprised of its consigned inventory of LED
bulbs.
(See Doc. 27-20 at 120, 166 (noting “as of May 2013, there
was an established delta report and process for reporting delta
going forward for the [XT-E and XB-G LEDs]”); Doc. 26-1 at 11721.)
Beginning in at least April of 2013, Cree communicated to
Benchmark on several occasions that it should attempt to achieve
a scrap rate of 0.5%.
(See Doc. 34 at 6; Doc. 26-1 at 94-96; Doc.
35-3 at 88-91, 110, 114.) 25
These communications, when coupled
with Benchmark’s assumption of the risk of loss, raise a genuine
dispute of fact as to whether the parties entered into an agreement
as to risk of loss and a scrap rate allowance.
Therefore, neither
party is entitled to summary judgment as to Cree’s counterclaim,
and their cross motions will be denied.
25
In his declaration, Stevens avers that “at an early meeting commencing
the relationship between Cree and Benchmark, I recall that my colleague
at the time, Neal Hunter, communicated that Cree expected Benchmark to
adhere to a 0.5% scrap allowance . . . .” (Doc. 32-2 ¶ 20.) However,
this is inadmissible hearsay. See Maryland Highways Contractors Ass'n,
Inc. v. State of Md., 933 F.2d 1246, 1251 (4th Cir. 1991) (“[H]earsay
evidence, which is inadmissible at trial, cannot be considered on a
motion for summary judgment.”); Design Res., Inc. v. Leather Indus. of
Am., No. 1:10CV157, 2014 WL 4159991, at *6 (M.D.N.C. Aug. 19,
2014), aff'd, 789 F.3d 495 (4th Cir. 2015).
29
C.
Cree’s
Breach
Counterclaim
of
Good
Faith
and
Fair
Dealing
Cree also alleges that Benchmark’s conduct constitutes a
breach of the implied duty of good faith and fair dealing.
While
the parties are subject to an implied covenant of good faith and
fair dealing, N.C. Gen. Stat. § 25–1–304, courts have recognized
that this cause of action is “simply another way of stating a claim
for breach of contract.” Home Meridian Int'l, Inc. v. Longnecker,
No. 1:12CV1093, 2014 WL 2257194, at *9 (M.D.N.C. May 29, 2014)
(quoting Ada Liss Grp. v. Sara Lee Corp., No. 06CV610, 2010 WL
3910433, at *14 (M.D.N.C. Apr. 27, 2010)). 26
Given that Cree has
raised a genuine dispute as to whether Benchmark breached the
agreement, neither party is entitled to summary judgment as to
this
counterclaim.
Cf.
Suntrust
Bank
v.
Bryant/Sutphin
Properties, LLC, 222 N.C. App. 821, 833, 732 S.E.2d 594, 603 (2012)
(“As the jury determined that plaintiff did not breach any of its
contracts with defendants, it would be illogical for this Court to
conclude that plaintiff somehow breached implied terms of the same
contracts.”)
D.
Cree’s UDTPA Counterclaim
In addition to seeking to recover under a breach of contract
theory,
Cree
alleges
that
Benchmark’s
failure
to
adequately
26
Courts have considered such claims independently where a special
relationship between the parties exists. Home Meridian, 2014 WL 2257194,
at *9. However, neither party disputes that these two claims should be
considered together in this instance. (Doc. 32 at 15.)
30
disclose the full amount of the scrapped LED bulbs constitutes a
violation
of
the
UDTPA.
(Doc.
8
¶
72.)
Cree
argues
that
Benchmark’s use of a “delta” calculation in its inventory reports
misled
Cree
as
to
the
true
amount
of
scrapped
LED
bulbs. 27
Benchmark contends that Cree has failed to allege sufficient
aggravating circumstances to support such a claim.
(Doc. 24 at 5;
Doc. 25 at 13.)
To prevail on a claim under the UDTPA, a party must establish
“(1) defendant committed an unfair or deceptive act or practice,
(2) the action in question was in or affecting commerce, and (3)
the
act
proximately
caused
injury
to
the
plaintiff.”
Home
Meridian, 2014 WL 2257194, at *7 (quoting Dalton v. Camp, 353 N.C.
647, 656, 548 S.E.2d 704, 711 (2001)).
While a UDTPA claim need
not be based on fraud, bad faith, or actual deception, a party
must show that a “defendant's acts possessed the tendency or
capacity to mislead or created the likelihood of deception” when
viewed from the perspective of the “average businessperson.”
27
RD
While Cree challenges Benchmark’s “substandard accounting and
inventory tracking practices” (Doc. 35 at 6), Cree does not directly
dispute the accuracy of the baseline figures provided in the weekly and
monthly reports it received regarding the LED bulbs at issue.
Cree
admits that Benchmark accurately reported the number of scrapped XT-E
LED bulbs through May of 2013 (Doc. 32-2 ¶ 36) and seeks to recover the
exact number of consigned XT-E and XB-G LED bulbs listed in Benchmark’s
final 2015 “Delta” report. (Compare Doc. 8 ¶ 42 with Doc. 27-21 at 8.)
In light of Cree’s admission that Benchmark accurately reported the
number of scrapped XT-E LED bulbs through May of 2013 (Doc. 32-2 ¶ 36),
it is unclear to what extent Benchmark misrepresented the number of
scrapped XT-E LED bulbs, given that those bulbs were phased out entirely
in June of 2013 (Doc. 29-3 at 121).
31
& J Properties v. Lauralea-Dilton Enterprises, LLC, 165 N.C. App.
737, 748, 600 S.E.2d 492, 501 (2004).
A “simple breach of contract
or failure to pay a debt do not qualify as unfair or deceptive
acts, but rather must be characterized by some type of egregious
or aggravating circumstances before the statute applies.”
Pan-
Am. Prod. & Holdings, LLC v. R.T.G. Furniture Corp., 825 F. Supp.
2d 664, 700 (M.D.N.C. 2011) (quoting Norman Owen Trucking, Inc. v.
Morkoski, 131 N.C. App. 168, 177, 506 S.E.2d 267, 273 (1998)).
Even if Benchmark’s conduct amounted to a breach of contract,
Cree fails to demonstrate sufficient aggravating circumstances to
support such a claim.
The parties acknowledge that the term
“delta” has no standard meaning within the industry.
(Doc. 27-22
at 212; Doc. 32-2 ¶ 28.) Even though Benchmark apparently assigned
two different meanings to the term within the May 2013 Final
Reconciliation Report, Cree had adequate information to understand
its meaning in the weekly reports. 28
28
As Benchmark notes, Cree was
Cree contends that Benchmark’s accounting and management of its
consigned LED inventory was substandard and not in accordance with
industry standards, relying on the instance in which a Benchmark employee
suggested weighing the scrapped LED bulbs as well as Clemons’s admission
during Benchmark’s Rule 30(b)(6) deposition that he was unable to recall
using this form of accounting with any of its other customers. (Doc.
27-20 at 31, 139; Doc. 29 at 6.)
Cree similarly relies on internal
emails from Benchmark which indicated that some employees questioned
whether the “delta” figure was being calculated correctly. (Doc. 29 at
9; Doc. 27-20 at 158-59, 164-66.)
However, Clemons subsequently
clarified in a sworn statement that his questions did not in fact relate
to the calculation of the “delta” figure, but a separate attrition report
unrelated to the “Delta” report. (Doc. 31-1 ¶ 9 (citing Doc. 27-20 at
165-66).)
32
also provided with all of the information it needed to calculate
the number of LED bulbs that had been scrapped. (Doc. 25 at 1314; Doc. 27-13; Doc. 26-1 at 115-16.) 29
Cree further admits that
the formula for calculating the “delta” figure was defined within
the Excel spreadsheet of each weekly IRR Report that Cree received.
(Doc. 26-1 at 119.)
Although Cree contends that Benchmark never
properly defined the meaning of “delta” within these reports, it
does not identify a single instance in which any Cree employee
ever inquired about the “delta” figure until over a year after
Cree had been regularly receiving such reports.
(Doc. 26-1 at
120; see Doc. 27-20 at 129.)
Consequently, Cree has failed to demonstrate that Benchmark’s
alleged misrepresentations were “likely to deceive” the “average
business person.”
See Angell v. Kelly, No. 1:01CV00435, 2006 WL
3479010, at *10 (M.D.N.C. Nov. 30, 2006) (granting summary judgment
on
plaintiff’s
UDTPA
claim
and
finding
plaintiffs
were
unreasonable in relying on defendant’s misrepresentations where
29
Cree relies on the fact that the presentation attached to an internal
Cree email discussing the “delta” calculation references two separate
“delta” values. (Doc. 32 at 8; Doc. 27-13 at 4.) The May 2013 report
does not provide an identical explanation for the “delta” figure, but
the report was sufficient to place Cree on notice regarding the bulbs
in question, particularly considering that the accuracy of the underlying
figures was not called into question. (Compare Doc. 27-13 at 4 (May
2013 presentation calculating 6.0% “DELTA” figure based on combination
of smaller 4.0% “delta” figure and 2.0% attrition rate) with Doc. 27-21
at 8 (final report prepared in January of 2015 calculating “delta” figure
with reference to “rework and attrition” and a separate category for
“scrap history”).)
33
the plaintiffs failed to conduct adequate due diligence prior to
sale or consult publicly available documents that demonstrated the
defendant’s misrepresentations to be false).
The court will
therefore grant Benchmark’s motion for summary judgment on this
counterclaim.
E.
Cree’s Unjust Enrichment Counterclaim
In the alternative to its breach of contract counterclaim,
Cree contends that it is entitled to recover the cost of damaged
LED bulbs in excess of the scrap rate under the theory of unjust
enrichment.
(Doc. 29 at 14.)
Benchmark argues that Cree’s claim
fails as a matter of law because the parties had a contract and
Cree failed to demonstrate that the parties understood the LED
components were provided with the expectation of payment.
(Doc.
25 at 29; Doc. 31 at 14.)
“Under North Carolina law, ‘unjust enrichment is a claim in
quasi contract or contract implied in law which arises when a party
confers a benefit upon another which is not required by a contract
either express or implied [in fact] or a legal duty [and] the
recipient thereof is . . . unjustly enriched and [is] required to
make restitution therefor.’”
Ernst v. N. Am. Co. for Life & Health
Ins., 245 F. Supp. 3d 680, 691 (M.D.N.C. 2017) (quoting M Series
Rebuild, LLC v. Town of Mount Pleasant, 222 N.C. App. 59, 67, 730
S.E.2d 254, 260 (2012)).
In order to establish a claim for unjust
enrichment in North Carolina, a plaintiff must show that “(1)
34
plaintiff
conferred
a
measurable
benefit
to
defendant,
(2)
defendant knowingly and voluntarily accepted the benefit, and (3)
the benefit was not given gratuitously.” TSC Research LLC v. Bayer
Chems. Corp., 552 F. Supp. 2d 534, 540 (M.D.N.C. 2008). “However,
[m]ore must be shown than that one party voluntarily benefited
another or his property.
Indeed, the mere fact that one party was
enriched, even at the expense of the other, does not bring the
doctrine of unjust enrichment into play.
There must be some added
ingredients to invoke the unjust enrichment doctrine.”
Crump v.
City of Hickory, 240 N.C. App. 602, 772 S.E.2d 873 (2015) (internal
citations and quotation marks omitted).
An unjust enrichment claim requires a showing that both
parties
understood
the
service
or
benefit
was
given
expectation of payment at the time it was provided.
with
an
Volumetrics
Med. Imaging, Inc. v. ATL Ultrasound, Inc., 243 F. Supp. 2d 386,
412 (M.D.N.C. 2003) (citing Scott v. United Carolina Bank, 130
N.C. App. 426, 429, 503 S.E.2d 149, 152 (1998)).
“The law creates
a presumption that an expectation of payment exists unless ‘the
services
are
obligation.’”
rendered
gratuitously
or in
discharge
of
some
Id. (emphasis removed) (quoting Atlantic Coast Line
R. Co. v. State Highway Commission, 268 N.C. 92, 96, 150 S.E.2d
70, 73 (1966)).
A contract implied in law cannot be asserted where
there is an express agreement between the parties, unless there is
a clear indication the parties abandoned the contract and no longer
35
intended
to
SupplyOne,
be
bound
Inc.,
by
925
F.
it.
See
Supp.
Triad
2d
Packaging,
774,
787-89
Inc.
v.
(W.D.N.C.
2013), aff'd, 597 F. App'x 734 (4th Cir. 2015); Geoscience Grp.,
Inc. v. Waters Const. Co., 234 N.C. App. 680, 690, 759 S.E.2d 696,
702 (2014).
Here, if the factfinder concludes that the parties entered
into an express agreement as to risk of loss and scrap rate, this
claim would be barred as a matter of law.
Supp. 2d at 789.
Triad Packaging, 925 F.
Benchmark contends alternatively that Cree has
not offered proof that the LED bulbs were consigned to it with an
expectation of payment.
(Doc. 25 at 29-30.)
Benchmark relies on
evidence that Cree communicated a zero cost for the bulbs during
the relationship and never communicated how billings for the bulbs
would occur. (Id.) However, the bulbs were delivered to Benchmark
on
consignment
Benchmark
would
such
not
that
be
there
would
permitted
to
be
keep
an
expectation
them
without
that
cost.
Moreover, there is some evidence that the bulbs were rendered with
an
expectation
Benchmark
of
payment
attributed
a
if
value
they
to
calculation of material overhead.
40-41.)
were
the
retained
bulbs
as
insofar
part
of
as
its
(Doc. 27-21 ¶ 5; Doc. 27-20 at
Thus, assuming (without deciding) that the claim could
legally proceed, there is a genuine dispute whether Benchmark
understood that if it retained the bulbs it would have to pay Cree
their reasonable value.
36
Therefore, the parties’ cross motions for summary judgment as
to this counterclaim will be denied.
F.
Cree’s Conversion Counterclaim
Finally, Cree alleges that Benchmark retained, and refused to
return, 395,022 XT-E LED bulbs and 199,588 XB-G LED bulbs of
inventory on hand.
(Doc. 8 ¶¶ 50, 83.)
In support of its motion
for summary judgment, Benchmark contends that it returned the XTE LED bulbs in 2014 (Doc. 27-21 ¶ 13), and Cree refused to accept
shipment of the XB-G bulbs in June of 2015 (Doc. 27-21 ¶ 12).
Benchmark relies on sworn statements to this effect.
¶¶ 12-13.)
(Doc. 27-21
Cree has proffered two declarations that simply state
that Benchmark has retained the inventory in question.
(Doc. 29-
3 ¶ 46; Doc. 32-2 ¶ 47.)
“The
elements
of
conversion
are:
(1)
the
unauthorized
assumption and exercise of the right of ownership; (2) over the
goods
or
personal
property;
(3)
of
another;
exclusion of the rights of the true owner.”
and
(4)
to
the
B.E.E. Int'l, Ltd. v.
Hawes, 381 F. Supp. 2d 488, 493 (M.D.N.C. 2005) (citing Peed v.
Burleson's, Inc., 244 N.C. 437, 439, 94 S.E.2d 351, 353 (1956)).
“[W]hen
the
defendant lawfully obtains
and then exercises
unauthorized
dominion
possession
or
or
control
control
over
the
property, demand and refusal become necessary elements of the
tort.”
Stratton v. Royal Bank of Canada, 211 N.C. App. 78, 83,
712 S.E.2d 221, 227 (2011) (citations omitted).
37
Proof of the
surrender of the chattel is a complete defense to a conversion
claim.
Herring v. Creech, 241 N.C. 233, 237, 84 S.E.2d 886, 889
(1954).
Here, it is undisputed that Cree owns the LED bulbs in
question
and
Benchmark
lawfully
obtained
possession
of
them.
Benchmark has provided evidence that it returned the XT-E bulbs.
Cree argues in its briefing that the shipment of XT-E bulbs in
2014 “did not contain LEDs, but rather an assortment of other
equipment and material from Benchmark’s facility that Cree was
unable to identify.”
(Doc. 32 at 10.)
Cree argues in its briefing
that Benchmark’s shipping slips do not match the inventory in
question (Doc. 32 at 18-19), 30 but the only evidence Cree offers
to support this claim are two declarations that state under oath
that Benchmark “has retained” the XT-E LED bulbs. (Doc. 29-3 ¶ 46;
Doc. 32-2 ¶ 47.)
However, in addition to this is evidence that
during settlement discussions required by the LOA, Benchmark noted
that the "XTE return shipment" remained a "disputed item" between
the parties.
(Doc. 29-3 at 119.)
A spreadsheet attached to an
email dated March of 2014 similarly lists the 395,022 XT-E bulbs
30
Cree does not cite to any part of the record containing admissible
evidence for that claim, nor has the court found any in its review of
the deposition testimony, see L.R. 7.2(a)(2) (“Each statement of fact
should be supported by reference to a part of the official record in the
case.”); Youse v. Duke Energy Corp., No. 1:02CV00808, 2003 WL 27356582,
at *3 (M.D.N.C. Dec. 15, 2003) (“The Court will not consider as a ‘fact’
any statement in Plaintiff's facts which is either argumentative or
unaccompanied by a record citation.”)
38
as "Unaccounted LEDs" for which Cree sought compensation (Doc. 293 at 131; Doc. 32-2 at 126.)
While general in nature and thin
proof, this testimony and evidence, when construed in the light
most favorable to Cree, suffices to create a genuine dispute of
fact as to whether Benchmark converted the XT-E bulbs in question.
Cf. Griffith v. Glen Wood Co., 184 N.C. App. 206, 214, 646 S.E.2d
550, 556 (2007) (“If the defendant's refusal to return the goods
is not expressed, it may be implied from the defendant's conduct.”
(citing Restatement (Second) of Torts § 237 cmt. g (Am. Law Inst.
1965).) 31
As to the XB-G bulbs, in contrast, while Cree similarly relies
on the same two affidavits that Benchmark “has retained” them (Doc.
32-2 ¶ 47; Doc. 29-3 ¶ 46), Benchmark has provided sworn testimony
that it offered to return the bulbs in June 2015 but that Cree
refused to accept them.
evidentiary
response
to
(Doc. 27-21 ¶ 12.)
Benchmark’s
sworn
Cree provides no
testimony.
Cree’s
affidavits that simply state that Benchmark retains the bulbs is
not inconsistent with Benchmark’s evidence that it does so because
its offer to return them was refused.
Thus, Cree fails to refute
this claim. (Doc. 27-21 ¶ 12; id. at 10.) The court will therefore
31
Benchmark notes that in Cree’s Rule 30(b)(6) deposition, Power could
not say whether Cree demanded the return of the XT-E LED bulbs following
the transition to XB-G LED bulbs in May of 2013. (Doc. 25 at 27; Doc.
26-1 at 112.) But Benchmark does not address whether the allegations
of Cree’s counterclaim can nevertheless be construed as a demand for
return of the bulbs, and the court will decline to grant the motion for
summary judgment to the extent it rests on this ground.
39
grant
Benchmark’s
motion
for
summary
judgment
as
to
Cree’s
conversion counterclaim as to the XB-G bulbs because Cree has
failed to establish a genuine dispute of fact as to it.
III. CONCLUSION
For the reasons set forth above,
IT IS THEREFORE ORDERED as follows:
1.
Benchmark’s motion for summary judgment (Doc. 24) is
GRANTED with respect to its breach of contract claim (first cause
of action), and Benchmark shall have and recover the following
from Cree: (1) $587,229.06 in unpaid invoices plus interest; (2)
$286,371.44 for excess and obsolete components plus interest; and
(3) $457,105.38 for excess amounts paid for consigned components
plus interest, with interest on these sums accruing from the date
the complaint was filed, May 25, 2016.
2.
Benchmark’s motion for summary (Doc. 24) is GRANTED as
to Cree’s counterclaims for violation of the UDTPA (third claim for
relief),
and
GRANTED
IN
PART
as
to
Cree’s
counterclaim
for
conversion as to the XB-G LED bulbs (fourth claim for relief), and
those claims are DISMISSED WITH PREJUDICE.
Benchmark’s motion for
summary judgment is otherwise DENIED.
3.
Cree’s motion for partial summary judgment (Doc. 28) is
GRANTED as to Benchmark’s alternative claim for unjust enrichment
(second cause of action) and DENIED as to Benchmark’s contract
claim (first cause of action) as well as to Cree’s breach of
40
contract
counterclaim
(first
claim
for
relief),
Cree’s
unjust
enrichment counterclaim (third claim for relief), and Cree’s breach
of the covenant of good faith and fair dealing counterclaim (second
claim for relief).
The action will proceed to trial on Cree’s
counterclaims for breach of contract (first claim for relief),
breach of the covenant of good faith and fair dealing (second claim
for relief), unjust enrichment (fifth claim for relief, in the
alternative), and conversion as to the XT-E LED bulbs (fourth claim
for relief).
/s/
Thomas D. Schroeder
United States District Judge
January 18, 2018
41
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