Quality Manufacturing Systems, Inc. v. R/X Automation Solutions, Inc.

Filing 56

MEMORANDUM AND ORDER denying 33 Motion for Partial Summary Judgment. Signed by Magistrate Judge John S. Bryant on 3/31/2014. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(eh)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
QUALITY MANUFACTURING
SYSTEMS, INC.,

)
)
)
Plaintiff
)
Counterclaim-Defendant )
)
v.
)
)
R/X AUTOMATION SOLUTIONS, INC., )
)
Defendant
)
Counterclaim-Plaintiff )

No. 3:13-0260
Magistrate Judge Bryant
Jury Demand

MEMORANDUM AND ORDER
Pending in this case is the Motion for Partial Summary
Judgment filed on behalf of Defendant R/X Automation Solutions,
Inc. (“RXAS”) (Docket Entry No. 33), to which Plaintiff Quality
Manufacturing Systems, Inc. (“QMSI”) has responded in opposition
(Docket Entry No. 37).
For the reasons stated below, the Court finds that RXAS’s
Motion for Partial Summary Judgment must be DENIED.
STATEMENT OF THE CASE
In this action removed from the Chancery Court for
Rutherford County, Tennessee, Plaintiff QMSI alleges that Defendant
RXAS has breached the “Pill Counter Agreement” between the parties
dated July 23, 2007, by wrongful termination of the Agreement. QMSI
has asserted causes of action for breach of contract, breach of the
covenants of good faith and fair dealing, unjust enrichment, breach
of fiduciary duties, and intentional interference with business
relationships. As relief, QMSI seeks a declaratory judgment to the
effect that the Pill Counter Agreement remains in effect and

binding on RXAS, together with an award of compensatory and
punitive damages.
Defendant RXAS has filed an answer denying liability,
asserting affirmative defenses, and asserting counterclaims under
theories of breach of contract, violation of the Tennessee Consumer
Protection Act, and violation of the Tennessee Uniform Trade
Secrets Act. RXAS seeks a declaratory judgment that the Pill
Counter Agreement is terminable by either party upon reasonable
notice as well as an award of monetary damages (Docket Entry No.
17).
STANDARD OF REVIEW
A party may obtain summary judgment by showing “that
there is no genuine dispute as to any material fact and that the
movant is entitled to judgment as a matter of law. See Fed. R. Civ.
P. 56(a); Covington v. Knox County School Sys., 205 F.3d 912, 914
(6th Cir. 2000). The moving party bears the initial burden of
satisfying the court that the standards of Rule 56 have been met.
See Martin v. Kelley, 803 F.2d 236, 239 n.4 (6th Cir. 1986). The
ultimate question to be addressed is whether there exists any
genuine dispute of material fact. See Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986); Covington, 205 F.3d at 914 (citing
Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)). If so, summary
judgment is inappropriate.
To

defeat

a

properly

supported

motion

for

summary

judgment, the nonmoving party must set forth specific facts showing
that there is a genuine issue of material fact for trial. If the
party does not so respond, summary judgment will be entered if
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appropriate. Fed. R. Civ. P. 56(e). The nonmoving party’s burden of
providing specific facts demonstrating that there remains a genuine
issue of material fact for trial is triggered once the moving party
shows an absence of evidence to support the nonmoving party’s case.
Celotex, 477 U.S. at 325. A genuine issue of material fact exists
“if the evidence is such that a reasonable jury could return a
verdict for the nonmoving party.” Anderson, 477 U.S. at 248. In
ruling on a motion for summary judgment, the Court must construe
the evidence in the light most favorable to the nonmoving party,
drawing all justifiable inferences in its favor. See Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
STATEMENT OF PERTINENT FACTS
RXAS

seeks

partial

summary

judgment

based

upon

the

provisions of the Pill Counter Agreement (Docket Entry No. 1-1 at
23-29), together with a minimal number of additional undisputed
facts (Docket Entry No. 38).
A

review

of

the

Agreement,

which

consists

of

approximately three and one-half typed pages, shows that QMSI and
RXAS entered into this agreement in July 2007 to provide “for
commercialization of the RX-Count Automatic Tablet and Capsule
Counting

Systems.”

The

agreements

between

the

parties

were

separated into two phases. In general, Phase 1, called “Production
System Development,” required the parties to cooperate and to
collaborate in order to develop a prototype pill counting system,
called the RX-Count Pill Counting System, created by RXAS into a
product ready to sell commercially to mail order pharmaceutical
vendors and other customers within the pharmaceutical industry. The
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parties

agree

that

Phase

1

of

the

their

agreement

has

been

satisfactorily completed.
Phase 2 of the Pill Counter Agreement, is called the
“Commercial System Production and long-term supply agreement.”
During Phase 2, QMSI is entitled to purchase pill counters from
RXAS “at the most advantageous (lowest) price offered to any other
company.” In addition, “[p]riority order fulfillments, whether from
production or from stock, will be given to QMSI.”
It appears undisputed that the parties have operated
under this Agreement for a period of time, and that RXAS, through
counsel, on January 11, 2013, notified QMSI by letter that RXAS
intended to terminate the Pill Counter Agreement effective July 1,
2013. This letter stated that such termination would include, but
not be limited to, “the termination of any right of QMSI to
purchase pill counters from RXAS under the conditions as stated in
the Pill Counter Agreement.”
ANALYSIS
The sole issue presented by RXAS’s motion for partial
summary judgment is whether RXAS is entitled to terminate the Pill
Counter Agreement upon reasonable notice.
In support of its argument, RXAS maintains that the
Agreement,

especially

following

completion

of

Phase

1,

is

predominantly one for the sale of goods, which is therefore
governed by the Uniform Commercial Code. RXAS further argues that
the

Agreement

does

not

contain

a

termination

provision

and,

therefore, is a contract of indefinite duration. As such, RXAS
maintains that, pursuant to Tenn. Code Ann. § 47-2-309(2), the
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Agreement is terminable by either party upon reasonable notice.
Section

47-2-309(2)

provides

as

follows:

“Where

the

contract

provides for successive performance but is indefinite in duration
it is valid for a reasonable time but unless otherwise agreed may
be terminated at any time by either party.” Finally, RXAS argues
that even if the termination provisions of the Uniform Commercial
Code do not apply, Tennessee common law would permit termination of
the Agreement upon reasonable notice unless the contract clearly
manifests the intent to enter into a perpetual contract.
In its response in opposition, QMSI does not challenge
directly the legal doctrines relied upon by RXAS. Instead, QMSI
argues that such principles are inapplicable here because the Pill
Counter Agreement is not one for an indefinite duration, but rather
was intended by the parties, according to its plain language, to
remain

in

effect

as

long

as

RXAS

produces

pill

counters.

Specifically, QMSI relies upon provisions of the Agreement which
provide that the terms and conditions of the Agreement will apply
“through all phases of the product life cycle” and serve as a
“long-term supply agreement.” Moreover, paragraph number 3 under
“Phase

2

Details”

states

that

if

RXAS

“creates

enhanced

or

competitive products for pill counting, QMSI will be granted rights
to purchase the enhanced and competitive products under the same
conditions
fulfillment

(including,
priorities)

but

not

as

the

limited
initial

to

price

pill

and

counter.”

order
The

immediately following paragraph reads as follows: “There is no
expiration date for QMSI rights to purchase the pill counters
covered in items 2 and 3 above.” Based upon these and other
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provisions of the Agreement, QMSI argues that the contract language
clearly evidences the intent of the parties that QMSI’s right to
purchase pill counters from RXAS at a favorable price and with
order fulfillment priority would continue not for an indefinite
period, but, instead, until the satisfaction of a condition –
cessation of pill counter sales by RXAS.
The central tenet of contract construction is that the
intent of the contracting parties at the time of executing the
agreement should govern. Planters Gin Co. v. Fed. Compress &
Warehouse Co., Inc., 78 S.W.3d 885, 890 (Tenn. 2002). The court’s
role in resolving disputes regarding the interpretation of a
contract is to ascertain the intention of the parties based upon
the usual, natural, and ordinary meaning of the language used.
Guiliano v. CLEO, Inc., 995 S.W.2d 88, 95 (Tenn. 1999). Where the
language of the contract is clear and unambiguous, its literal
meaning controls the outcome of contract disputes; but, where a
contractual provision is ambiguous, i.e., susceptible to more than
one

reasonable

interpretation,

the

parties’

intent

cannot

be

determined by a literal interpretation of the language. Planters
Gin Co., 78 S.W.3d at 890.
Where the contract itself does not state its duration,
courts have generally held that it should be effective for a
reasonable time or terminable at will with reasonable notice.
However, where the parties have indicated an intent that their
contractual obligations last indefinitely until the occurrence of
a particular event, many courts have concluded that the contracts
are terminable only upon the occurrence of that event. Johnson v.
6

Welch, 2004 WL 239756 at *10 (Tenn. Ct. App. Feb. 9, 2004)
(unpublished).
From a review of the parties’ agreement, and interpreting
its provisions in terms of their normal, usual meaning, the Court
cannot find as a matter of law that the Agreement may be terminated
by RXAS upon reasonable notice. The Court finds that certain
contractual

provisions,

including

those

quoted

above,

may

be

construed to support a finding that the parties intended that the
provisions of Phase 2 of the Agreement would survive as long as
RXAS continued to manufacture pill counters. Accordingly, the Court
finds that RXAS’s motion for partial summary judgment (Docket Entry
No. 33) must be DENIED.
It is so ORDERED.
/s/ John S. Bryant
JOHN S. BRYANT
United States Magistrate Judge

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