MCS Manufacturing LLC v. Tenneco Inc. et al
Filing
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Memorandum Opinion and Order. Tenneco's Motion for Summary Judgment 42 is granted in part and denied in part. The fraudulent-inducement claim is dismissed with prejudice. However, because issues of material fact remain, the breach-of-contract and promissory estoppel claims shall proceed. See Order for details. Judge Jack Zouhary on 3/26/2024. (V,S)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OHIO
WESTERN DIVISION
MCS Manufacturing LLC,
Plaintiff,
Case No. 3:22 CV 1603
MEMORANDUM OPINION
-vsJUDGE JACK ZOUHARY
Tenneco Inc., et al.,
Defendants.
INTRODUCTION
For over a decade, Plaintiff MCS Manufacturing LLC assembled “top mounts” for Defendant
Tenneco, Inc., a General Motors (“GM”) supplier. In 2022, Tenneco terminated its contract with
MCS after deciding to move all top mount assemblies to a factory in Mexico. This lawsuit ensued.
The suit against Tenneco, and its subsidiaries Tenneco Automotive Company Inc. and DRiV
Inc., alleges three claims: breach of contract, promissory estoppel, and fraudulent inducement (Doc.
1-2 at 7–8). Tenneco now moves for summary judgment (Doc. 42), appropriate only where “there
is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” Federal Civil Rule 56(a). The matter is fully briefed (Docs. 42, 43, 45–49), and this Court
heard oral argument (Doc. 48).
BACKGROUND
Business History
MCS is a small business in Lyons, Ohio founded in 2008 by Aaron Call. Its primary client,
Tenneco, located in Napoleon, Ohio, provides part to GM. According to MCS, “Tenneco Napoleon
provided MCS with equipment to run certain projects and, at times, treated MCS as a job shop for
Tenneco Napoleon” (Doc. 45 at 7). Tenneco used “MCS as a Tenneco distribution site, allowed
MCS to serve as a direct pick-up point for products, and used MCS for other work that would be
unusual for typical suppliers” (id.).
In 2013, MCS received its first major contract award from Tenneco -- the K2XX platform -resulting in significant investment to prepare for the project. MCS’s role was to assemble the top
mounts, which would then be used in the struts Tenneco sent to GM. That same year, Tenneco
implemented a new electronic supplier system, issuing “Scheduling Agreements,” Purchase Orders,
and material releases via the “SupplyWeb portal” and by email.
Tenneco released periodic
Scheduling Agreements, through the SupplyWeb portal, containing the quantity of top mounts
needed. MCS would then assemble the parts and ship them to Tenneco. So far, so good.
By 2015, GM had developed a new truck platform, the T1XX, to replace the K2XX. Tenneco
solicited a quote from MCS. According to MCS, the T1XX program required additional investments
in new machines and equipment. Thus, MCS would need to plan for cost recovery over several
years when determining a bid price. And, because Tenneco expected MCS to receive bulk material
directly from China and then live-load finished goods, the need for MCS to expand its facility is
undisputed (Doc. 45 at 9).
A New Project
Negotiations for this new project began in September 2015. Tenneco requested a “target
price” of $0.29 per mount (Doc. 43-11 at 4). MCS countered with a bid of $0.49, plus $75,000 for
tooling (id. at 3). Tenneco rejected this as too high. MCS came back with a price of $0.395, which
Tenneco accepted, but stated there were no tooling dollars for the project and MCS would need to
absorb that cost (id. at 2). We are now in July 2016. Tenneco further stated: “[W]e are still being
told this is a 6 yr. program that starts mid 2018” (id.). Tenneco informed MCS: “Sales states this is
going to run for 2 generations so we need to keep a clean launch and control cost[s] going forward
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to keep the 10 yrs. of production” (Doc. 43-37 at 2). Two months later, in September, MCS took
steps to acquire financing from a bank to expand operations for the T1XX.
In November 2016, MCS, still running K2XX mounts, asked for clarification of the new
T1XX expected volumes, and Tenneco Program Engineer Tom Billerman responded with a figure
of 2,092,675 T1 mounts per year (Doc. 43-15 at 2–3). Billerman cautioned MCS “will need to
confirm capacity,” as MCS would need to ramp up the T1XX project while winding down the K2XX
project (id. at 2). In December, MCS asked for $40,000 for tooling; Tenneco again declined and
asked to confirm the price would remain $0.395 (Doc. 43-19). On January 4, 2017, Tenneco stated:
“This is a big piece of business for MCS that’s supposed to run several years so let me know where
you stand with this extra $40k as we have to make fast decisions . . . ” (id. at 2). MCS opted to move
forward without any tooling dollars.
An Award
Three weeks later, on January 25, the numerous phone calls and emails culminated in an
official Award to MCS (Doc. 43-20 at 2):
Tenneco has selected MCS as the supplier of these components. This selection is
based on MCS quote response and all correspondence with regards to the components.
Tooling POs will be released shortly, if applicable. This email is to be used as the
official kickoff for this part and time-table henceforth.
The email listed the price at $0.395 per piece (id.). MCS then began in earnest gearing up for the
project: “Within two weeks of the Award, MCS began working to develop, design, and purchase
the necessary equipment, tooling, and assembly solutions. Among other things, MCS co-designed,
manufactured, and patented a new system and method for the assembly of top mounts for the T1XX
program” (Doc. 45 at 12). In February, Tenneco volunteered, in a separate agreement, to pass on to
MCS $15,140 in tooling money from GM (Doc. 43-33).
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Now it is May 2017. Tenneco issues the first Scheduling Agreement of the project, which
states it “incorporated” the conditions of purchase and supplier manual, and “supersede[d] all prior
and contemporaneous oral or written agreements” (Doc. 43-4 at 2). The Scheduling Agreement
dealt with the terms on quantity and duration (id. at 2–3):
Quantity. . . . Any forecasts provided by Buyer of estimated quantities (including any
such forecasts provided in a purchase order, scheduling agreement or outside the firm
period of Buyer’s releases) are not binding on Buyer and are for informational
purposes only. Under no circumstances will Buyer be obligated to purchase any
quantity of Products except as expressly provided for in the Agreement or in the firm
period of Buyer’s releases for Products.
Duration. Unless otherwise provided in the Agreement, the initial term of the
Agreement will commence upon acceptance and expire one-year thereafter, and . . . ,
the Agreement will automatically continue in effect thereafter for rolling one-year
terms but will be terminable by either party on at least six months’ written notice.
In May 2018, MCS received an additional Award for T1XX SUV platforms, and began investing in
further expansion of its facility. Other Scheduling Agreements were issued during production,
including one in September 2018 that increased the price to $0.44 due to a problem with “certain
plastic bushings provided to MCS for incorporation into the top mounts [] cracking and breaking
during the assembly process” (Doc. 45 at 13).
Mexico
With the T1XX program now well into in full production, all was well until, in June 2019,
Tenneco Senior Commodities Buyer Ruth Burdine informed MCS the project may be terminated
and moved to Mexico (Doc. 45-1 at 8–9). The program continued over the next year and a half,
until February 2021 when Tenneco sent a six-month termination notice, as required by the
Scheduling Agreement (Doc. 45-1 at 73). MCS continued producing T1XX top-mount assemblies
for Tenneco until October 22, 2021 (for GM trucks) and March 15, 2022 (for GM SUVs). By that
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time MCS had manufactured over 4 million T1XX parts as follows: 2019 -- 1.2 million; 2020 -- 1.5
million; 2021 -- 1.67 million.
DISCUSSION
The above timeline covers seven years of the relationship between the parties. MCS asserts
the January 2017 Award created an enforceable contract between the parties; Tenneco argues the
May 2017 Scheduling Agreement is the only contract. If MCS is correct, Tenneco may have
promised MCS a six-year project. But if the Scheduling Agreement controls, the phone calls and
prior emails may be irrelevant, and Tenneco properly terminated the one-year contract with the
required six-months’ notice.
Breach of Contract
“Under Ohio law, essential elements of a contract include: an offer, acceptance, the
manifestation of mutual assent, and consideration (the bargained-for legal benefit or detriment).”
Revere Plastic Sys., LLC v. Plastic Plate, LLC, 509 F. Supp. 3d 986, 996 (N.D. Ohio 2020). Ohio
law mirrors the Uniform Commercial Code. “A purchase order constitutes an ‘offer to buy goods
for prompt or current shipment’ and ‘invit[es] acceptance by any manner and by any medium
reasonable in the circumstances.’” Id. (quoting Ohio Revised Code (“R.C.”) § 1302.09). See also
Am. Bronze Corp. v. Streamway Prods., 8 Ohio App. 3d 223 (Ohio Ct. App. 1982) (“Generally, the
submission of a purchase order is viewed as being an offer which may then be accepted or rejected
by the seller.”).
The dispositive question in this case is whether the January 2017 Award contains the terms
necessary to obligate Tenneco to a certain volume and duration. Tenneco claims that no contract
existed prior to the Scheduling Agreements beginning in May 2017. In support, Tenneco argues
there were no definite terms exchanged in the Award: “[A]n offer must be ‘so definite in its terms,
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or must require such definite terms in the acceptance, that the promises and performances to be
rendered by each party are reasonably certain’” (Doc. 42-1 at 17) (quoting LifeBio, Inc. v. Eva
Garland Consulting, LLC, 2023 WL 4549364, at *6 (S.D. Ohio 2023)). In response, MCS asserts
the emails sufficiently “reflect the ‘essential terms,’ with [requisite] definiteness and certainty” (Doc.
45 at 19) (quoting N. Side Bank & Tr. Co. v. Trinity Aviation, LLC, 2020-Ohio-1470, ¶ 15 (Ohio Ct.
App. 2020)).
Tenneco relies on Revere Plastic Systems, involving a blanket purchase order with no price
term. 509 F. Supp. 3d. 986. The district court held that “[b]ecause it was not a requirements contract,
nor was it a buyer’s option, any ‘agreement’ contained no quantity term until [plaintiff] issued
releases for ‘firm’ quantities.” Id. at 999. MCS’ claims in this case are different: “[I]n contrast, the
situation involves a dominant and controlling business partner that issued an Award -- premised
upon duration, quantity, and price terms -- that also required immediate capital expenditures” (Doc.
45 at 24).
Tenneco further points to Babcock & Wilcox Co. v. Hitachi America, Ltd., 406 F. Supp. 2d
819 (N.D. Ohio 2005) for the proposition that “[w]here, as here, the purchase order contains a
complete and final statement of all terms, including a detailed description of the good[s], price,
payment terms, delivery specifications, and various other terms, as well as a statement that the
seller’s acceptance is conditioned on the terms in the purchase order, the purchase order is the offer”
(Doc. 42-1 at 18). According to MCS, that case is also different because “the proposal itself was
labeled a ‘price quotation’ and expressly ‘called for further negotiation’ [and] the parties expressly
agreed that there remained ‘open issues’ . . .” (Doc. 45 at 22) (quoting Babcock, 406 F. Supp. 2d at
829–30).
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Important here, a contract for the sale of goods must include price and quantity terms to be
enforceable. Tubelite Co., Inc. v. Original Sign Studio, Inc., 176 Ohio App. 3d. 241, 248 (Ohio Ct.
App. 2008). Tenneco argues there was no specific volume or duration terms (Doc. 42-1 at 7):
Because the component parts that Tenneco needed varied by program and over time
based on Tenneco’s own customers’ orders, the Scheduling Agreement did not contain
specific quantity terms. [] Rather, the quantity for each order was communicated to
MCS on releases issued electronically through the SupplyWeb system against the
Scheduling Agreement and via email.
But Tenneco provided MCS with specific figures for output -- 2,092,675 pieces per year (Doc. 43-15
at 2). As noted at the Hearing, this figure and the duration of the project were necessary for MCS to
calculate the $0.395 cost per piece in its bid (Doc. 43-20). Tenneco was fully aware that MCS was
relying on these figures to make improvements and calculate costs to meet the projections.
Under Ohio law, “[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.”
Extreme Mach. & Fabricating, Inc. v. Avery Dennison Corp., 2016-Ohio-1058, ¶ 23 (Ohio Ct. App.
2016) (quoting R.C. § 1302.07(A)). Throughout their relationship, MCS and Tenneco often acted
informally in coming up with contract terms. For instance, during the summer of 2018, Call from
MCS met with Burdine who demanded MCS pay a “productivity rebate” of $100,000, based on the
fact that Tenneco had “spent over $1,000,000 with MCS over the last three years” (Doc. 45-1 at 60).
After several back and forth emails, the parties agreed that MCS would pay Tenneco $5,600 for each
of the next four quarters (Doc. 45-1 at 57–61). This is just one such instance of binding terms
between the parties not contained in the Scheduling Agreements.
Here, questions of material fact remain with regard to the parties’ intent at the time of the
January 2017 Award, as well as whether the materials terms to form a contract were met. Such
disputes on “issues regarding parties’ intent, with respect to agreements or contracts, present
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interpretive issues traditionally understood to be for the trier of fact.” United States v. Cello-Foil
Products, Inc., 100 F.3d 1227, 1234 (6th Cir. 1996) (internal quotation marks and citation omitted).
Quasi-Contract Claims
MCS also asserts two quasi-contract claims -- promissory estoppel and fraudulent inducement
(Doc. 1-2 at 23–24). Each is addressed in turn.
First, to prove a promissory-estoppel claim, MCS must show: “(1) a clear and unambiguous
promise; (2) reasonable and foreseeable reliance . . . ; and (3) injury resulting from such reliance.”
Faurecia Auto. Seating, Inc. v. Toledo Tool & Die Co., 579 F. Supp. 2d 967, 973 (N.D. Ohio 2008)
(citation omitted). Whether Tenneco “made ‘a clear and unambiguous promise’ is a question of
fact.” Johnson v. Calhoun Funeral Homes, Inc., 2017 WL 661692, at *3 (N.D. Ohio 2017) (citation
omitted). MCS alleges that Tenneco promised to purchase some two million pieces per year for six
years. And, based on these promises, MCS incurred substantial costs preparing for the project.
The record includes sufficient evidence of reliance, including the purchase of equipment and
expansion of warehouse space. Whether this reliance was reasonable is, again, a question for the
jury to decide. See Executone of Columbus, Inc. v. Inter-Tel, Inc., 665 F. Supp. 2d 899, 921 (S.D.
Ohio 2009) (“The determination of whether a party has established the reliance element of a
promissory estoppel claim is generally a question of fact for a jury to resolve.”) (cleaned up).
Second, to prove fraudulent inducement, MCS must prove: (1) a breach of “a duty owed
separately from that created by the contract”; and (2) “actual damages attributable to the wrongful
acts of the alleged tortfeasor which are in addition to those attributable to the breach of the contract.”
Textron Fin. Corp. v. Nationwide Mut. Ins. Co., 115 Ohio App. 3d 137, 151 (1996). MCS bases this
claim on “(1) representations concerning duration and volume of the T1XX program and (2)
representation of availability of tooling dollars from [GM] . . .” (Doc. 45 at 28). The parties
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negotiated over price and tooling dollars throughout 2015 and 2016. When GM eventually produced
money for tooling, Tenneco remitted tooling money directly to MCS (see Doc. 43-33). There is no
indication Tenneco knew of the money in advance and misrepresented to MCS that none was
available. Indeed, some tooling money became available later from GM. Simply put, the record is
bare that Tenneco did not intend to act in accordance with its representations from the outset. This
claim fails as a matter of law.
CONCLUSION
Tenneco’s Motion for Summary Judgment (Doc. 42) is granted in part and denied in part.
The fraudulent-inducement claim is dismissed with prejudice. However, because issues of material
fact remain, the breach-of-contract and promissory estoppel claims shall proceed.
IT IS SO ORDERED.
s/ Jack Zouhary
JACK ZOUHARY
U. S. DISTRICT JUDGE
March 26, 2024
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