United States District Court, E.D. Michigan, Northern Division
For Hemlock Semiconductor Corporation, Plaintiff: Colin M. Battersby, Emma T. Chen, Richard C. Sanders, Miller, Canfield, Detroit, MI; Craig W. Horn, Braun, Kendrick, Saginaw, MI.
For Deutsche Solar GmbH, formerly known as Deutsche Solar AG, Defendant: Anthony Cillo, David F. Russey, Cohen & Grigsby, P.C., Pittsburgh, PA; Daniel P. Malone, Butzel Long (Detroit), Detroit, MI; Joseph E. Richotte, BUTZEL LONG, P.C., Bloomfield Hills, MI; Larry K. Elliott, Cohen & Grisgsby, Pittsburgh, PA.
ORDER GRANTING IN PART AND DENYING IN PART MOTION TO STRIKE, STRIKING AFFIRMATIVE DEFENSES, GRANTING IN PART AND DENYING IN PART MOTION TO COMPEL, DIRECTING PRODUCTION, ADJOURNING DISCOVERY CUTOFF, DENYING MOTION FOR LEAVE TO AMEND, AND DIRECTING SUBMISSION OF SCHEDULING PROPOSALS
Honorable THOMAS L. LUDINGTON, United States District Judge.
Hemlock Semiconductor and Deutsche Solar are each significant actors in the
global solar energy industry. Their immediate dispute arises from a series of contracts for the sale of large quantities of industrial-grade polycrystalline silicon from Hemlock to Deutsche Solar. Following changes in global solar market conditions, Deutsche Solar ceased making polycrystalline silicon purchases under the Supply Agreements with Hemlock, some of which continued until 2019. When Deutsche Solar discontinued making further purchases or payments under the Supply Agreements, Hemlock initiated this suit.
Hemlock filed its complaint on March 7, 2013. The parties engaged in discovery until August 22, 2014, at which point the parties requested a status conference. During the conference, the parties informed the Court of a dispute regarding discovery requests that could potentially relate to a number of Deutsche Solar's affirmative defenses. These defenses, as identified in Deutsche Solar's Answer, are:
6. The Supply Contracts as Plaintiff seeks to enforce them are illegal, and/or the enforcement of the Supply Contracts would make the Court a party to a violation of European Union antitrust law.
. . .
12. Any required performance on the part of Deutsche Solar is excused by the doctrine of commercial impracticability.
13. Any required performance on the part of Deutsche Solar is excused by the doctrine of frustration of purpose.
14. Any required performance on the part of Deutsche Solar is excused by the doctrine of force majeure.
15. Any required performance on the part of Deutsche Solar is excused by the supervening intervention of one or more third parties.
16. Any required performance on the part of Deutsche Solar is excused by the illegal dumping of solar panels by the Chinese Government and Chinese producers, which caused a fundamental disruption in the market that was not foreseen or foreseeable by the parties at the time of their agreements.
Def.'s Answer, ECF No. 14 at 11-12.
Hemlock indicated that it had insufficient information regarding these defenses and would, on that basis, not be making the requested disclosures. As a result, on September 24, 2014, Deutsche Solar filed a Motion to Compel. ECF No. 30. In response, and as contemplated in conference with the Court, Hemlock cross-moved to strike Deutsche Solar's affirmative defenses upon which its discovery requests were predicated. ECF No. 36. Those motions are now before the Court.
Hemlock Semiconductor, Plaintiff in this action, is a Michigan corporation involved in the manufacture and sale of polycrystalline silicon and photovoltaic solar cells and modules. ECF No. 1 at ¶ ¶ 2, 3, 7.
Deutsche Solar GmbH, Defendant in this action, is a German limited liability company involved in the production of multicrystalline silicon wafers, " which are the building blocks of photovoltaic solar cells and modules." ECF No. 1 at ¶ 8.
Hemlock and Deutsche Solar, beginning " [i]n or about August 2005, . . . entered into [four] Long Term Supply Agreement[s], pursuant to which Deutsche Solar agreed to purchase and Hemlock agreed to supply, polycrystalline silicon[.]" ECF No. 1 at ¶ 9. Deutsche Solar agreed to purchase certain defined quantities of polycrystalline silicon in accordance with a schedule outlined in the agreements. Id. The parties agree that the effective dates found in the supply agreements are as follows:
The first Long Term Supply Agreement . . . is effective from August 30, 2005 to December 31, 2015. The second Long Term Supple Agreement . . . is effective from June 10, 2006 to December 31, 2018. The third Long Term Supply Agreement . . . is effective from June 27, 2007 to December 31, 2019. The fourth Long Term Supply Agreement . . . was effective from January 1, 2010 to December 31, 2012.
ECF No. 1 at ¶ 10.
Hemlock alleges that these agreements took the form of " take or pay" contracts " such that Deutsche Solar is required to pay the full purchase price for [polycrystalline silicon] scheduled to be purchased each year, regardless of whether Deutsche Solar actually takes delivery of the product." ECF No. 1 at ¶ 11. Under this construction of the agreements, " Deutsche Solar's scheduled purchases over the respective terms of the four Supply Agreements totaled 24,390,000 kilograms" of polycrystalline silicon. Id. at ¶ 12.
Deutsche Solar denies that the Supply Agreements were of the " take or pay" type and so also contests the amount of polycrystalline silicon they agreed to take in delivery. ECF No. 14 at ¶ ¶ 11, 12. According to Deutsche Solar, the parties " subsequently modified the agreements by agreement and by their conduct." Id. at ¶ 10. Hemlock confirms in its motion to strike that " [t]he parties occasionally amended and restated the Supply Agreements between 2008 and 2011." ECF No. 36 at 1.
In March of 2012, Deutsche Solar communicated with Hemlock that it was no longer comfortable with the pricing terms of the Supply Agreements. The parties disagree as to the interpretation of the two letters, sent by Deutsche Solar's CEO to Hemlock management, attached to Hemlock's complaint as Exhibits 5 & 6. The parties do agree, however, that " Deutsche Solar . . . has not purchased any [polycrystalline silicon] from Hemlock since March 31, 2012 and that it has placed no purchase orders for [polycrystalline silicon] with Hemlock." ECF No. 14 at ¶ 18.
On October 12, 2012, Hemlock sent a letter to Deutsche Solar seeking " adequate assurance that Deutsche Solar will fully perform its obligations under its four [Supply Agreements with Hemlock.]" ECF No. 8, Ex. 7. On October 16, 2012, Deutsche Solar responded to Hemlock's letter and stated, among other things, that " Deutsche Solar is committed to fulfill its obligations under the Long Term Supply Agreements as amended from time to time." Id., Ex. 8. In a reply to this letter, Hemlock expressed its belief that Deutsche Solar's assurances were inadequate and that " Deutsche Solar's October 16 response fails to provide the requisite assurances contemplated by MCLA § 440.2609 and applicable Michigan law[.]" Id., Ex. 9.
Five months later, on March 4, 2013, Hemlock issued Deutsche Solar an invoice in the amount of $83,971,500.00, which it believed represented the value of polycrystalline silicon that Deutsche Solar did not purchase during 2012. ECF No. 1 at ¶ 25. Hemlock alleges that " on March 5, 2013, Deutsche Solar responded by letter, formally objected to the invoice, and claimed the Supply Agreements are 'null and void.'" Id.  Deutsche Solar admits that Hemlock issued such an invoice and that it " disputed the accuracy and validity of the invoice." ECF No. 14 at ¶ 25.
A " court may strike from a pleading an insufficient defense or any redundant,
immaterial, impertinent, or scandalous matter." Fed.R.Civ.P. 12(f). A defense is insufficient " if as a matter of law, the defense cannot succeed under any circumstances." Hahn v. Best Recovery Servs., LLC, 2010 WL 4483375, *2 (E.D. Mich. Nov. 1, 2010) (internal quotation marks and citations omitted). A Rule 12(f) motion is also proper " if it aids in eliminating spurious issues before trial, thereby streamlining the litigation." Id. (internal quotation marks and citation omitted). " Generally, however, a Rule 12(f) motion should not be granted if the insufficiency of the defense is not clearly apparent, or if it raises factual issues that should be determined on a hearing on the merits." Id. (internal quotation marks and citation omitted). Motions seeking to strike an affirmative defense are disfavored and should be used sparingly. As observed by the Sixth Circuit, a motion to strike " is a drastic remedy to be resorted to only when required for purposes of justice. The motion to strike should be granted only when the pleading to be stricken has no possible relation to the controversy." Brown & Williamson Tobacco Corp. v. United States, 201 F.2d 819, 822 (6th Cir. 1953) (internal quotation marks and citations omitted).
Although the current round of briefing before the Court was set in motion by Deutsche Solar's Motion to Compel, Hemlock's Motion to Strike is analytically precedent. If Hemlock's motion succeeds in striking certain affirmative defenses from Deutsche Solar's answer, then Deutsche Solar would no longer have a ground on which to advance the relevance of its discovery request. Because of the posture of the motions, Hemlock's Motion to Strike will be considered first and then, if any of Deutsche Solar's affirmative defenses survive, its Motion to Compel will be taken up.
Hemlock attacks Deutsche Solar's affirmative defenses in two groups. First, Hemlock takes up Deutsche Solar's affirmative defense of illegality. The grounds for that illegality, according to Deutsche Solar, lie in European Union antitrust law. Deutsche Solar alleges that its contract with Hemlock violates EU antitrust laws and so should not be enforced by this Court. Hemlock answers this assertion in its motion to strike by claiming that illegality under foreign antitrust laws is not the type of illegality cognizable as an affirmative defense. As a result, Hemlock claims, the affirmative defense is legally insufficient and should be stricken.
Hemlock next challenges a series of Deutsche Solar's defenses, all of which are based in a single nucleus of facts. Deutsche Solar contends that their performance under the Supply Agreements was excused because of China's illegal intervention into the international solar market, which led to the decline and eventual collapse of the market. Deutsche Solar suggests that the risk associated with China's conduct is thus, appropriately, allocated to Hemlock. Hemlock responds that a price collapse is not a recognized basis for defenses to contract actions in Michigan and so the defenses related to that set of facts should be stricken.
The Supreme Court has twice addressed when a contract's illegality under antitrust laws and regulations can serve as an affirmative defense in a contract-enforcement action. The two opinions, in seeming conflict with each other, have engendered a great degree of discussion in the lower federal courts. The earlier of the cases, Kelly v. Kosuga, 358 U.S. 516, 79 S.Ct. 429, 3 L.Ed.2d 475 (1959), holds, at its broadest, that the illegality of a contract under federal antitrust laws does not serve
as a defense to a contract enforcement action. The later of the opinions, Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 102 S.Ct. 851, 70 L.Ed.2d 833 (1982), at its broadest, distinguishes Kosuga and holds that, under certain conditions, the illegality of a contract under federal antitrust law can furnish an affirmative defense of illegality.
Hemlock relies on the applicability of Kosuga to the current dispute. According to Hemlock, Kosuga bars Deutsche Solar from asserting its illegality affirmative defense. Hemlock reads Kosuga to hold that permitting the affirmative defense of illegality, where the illegality arises under antitrust laws, is the equivalent of a court enforcing antitrust laws. Enforcing EU antitrust laws is, Hemlock claims, something United States courts have refused to do on the grounds of international comity. Deutsche Solar, in response, argues that the interplay between Kosuga and Kaiser Steel is important to addressing Hemlock's motion. Deutsche Solar argues that Kaiser Steel, not Kosuga, controls the analysis in this case. After Kaiser Steel, the affirmative defense of illegality under antitrust laws is expressly permitted.
As discussed further hereafter, the reasons offered by Hemlock for why Deutsche Solar's affirmative defense of illegality should be stricken are without merit. There is, however, sufficient independent authority requiring that the defense be stricken. Specifically, Kaiser Steel and later cases foreclose the defense. For that reason, Hemlock's motion will be granted. The authority generated by Kaiser Steel and its conclusion that Deutsche Solar's affirmative defense cannot succeed will be analyzed first. Due to Hemlock's assertion of the interrelatedness of its argument and the grounds on which the affirmative defense will indeed be stricken, the alternative argument advanced by Hemlock will be addressed as well.
The starting point in this analysis requires understanding the relationship between Kosuga and Kaiser Steel. Kosuga concerned two individuals involved in the onion trade. The respondent, Kosuga, brought suit against Kelly when Kelly " fail[ed] to complete payment of the purchase price of 50 cars of onions which the respondent had sold to the petitioner in December 1955." Kosuga, 358 U.S. at 516. " The petitioner interposed the defense that the sale was made pursuant to and as an indivisible part of an agreement which violated § 1 of the Sherman AntiTrust [sic] Act." Id. (internal statutory citations omitted). The petitioner was an onion grower who had purchased onions from the respondent in the past. The petitioner alleged that the basis of his agreement with respondent was a threat by respondent and respondent's business associate that they were in control of large quantities of onions and would flood the market (thus depressing prices) if onion growers such as the petitioner did not purchase from them. Id. at 517.
Eventually, the petitioner and other growers agreed to purchase a percentage of the respondent's onion store in exchange for the respondent agreeing not to flood the market. Id. The portion of the agreement applicable to the petitioner contemplated that the petitioner would purchase 50 cars of onions from the respondent. Id. at 518. The petitioner began making payments on that purchase but eventually fell into default and repudiated the agreement. Id. The respondent then brought suit for the ...