United States District Court, E.D. Michigan, Northern Division
ORDER GRANTING HEMLOCK'S MOTION TO DISMISS,
DISMISSING KYOCERA'S FIRST AND SECOND COUNTERCLAIMS, AND
OVERRULING KYOCERA'S OBJECTIONS
L. LUDINGTON United States District Judge.
present dispute between Plaintiff Hemlock Semiconductor
Corporation (“Hemlock Corp.” or
“Hemlock”) and Defendant Kyocera Corporation
arises from a series of contracts for the sale of quantities
of industrial-grade polycrystalline silicon by Hemlock to
Kyocera. Following changes in global solar market conditions,
Kyocera sought to excuse its performance under a force
majeure provision in the parties' contracts. In response,
Hemlock sought adequate assurances that Kyocera would perform
its obligations under the agreements. When Hemlock concluded
that Kyocera had not provided adequate assurances that it
would perform its contractual commitment, it initiated this
suit on April 1, 2015. On March 8, 2016, the matter was
consolidated with a related case between Hemlock
Semiconductor, LLC (“Hemlock LLC”) and Kyocera.
See ECF No. 83.
31, 2016 Kyocera filed a motion to compel discovery.
See ECF No. 105. That motion was referred to
Magistrate Judge Patricia T. Morris, who denied the motion on
July 8, 2016. See ECF No. 116. On July 11, 2016
discovery was stayed in order to allow the parties time to
attempt to resolve the matter. See ECF No. 117.
After the stay was lifted, on January 1, 2017, Kyocera filed
objections to the magistrate judge's discovery order.
See ECF No. 128. Then, on January 27, 2017 Hemlock
Corp. and Hemlock LLC (together “Hemlock”) filed
a motion to dismiss Kyocera's two remaining
counterclaims. See ECF No. 130. For the reasons
stated below, Hemlock's motion to dismiss will be granted
and Kyocera's objections will be overruled.
in 2005, in the face of a worldwide polysilicon shortage,
Hemlock and Kyocera entered into four long-term polysilicon
supply contracts. The first Long Term Supply Agreement
(“Agreement I”) is effective from August 30, 2005
to December 31, 2015. The second Long Term Supply Agreement
(“Agreement II”) is effective from July 21, 2006
to December 31, 2018. The third Long Term Supply Agreement
(“Agreement III”) is effective from July 18, 2007
to December 31, 2019. Finally, the fourth Long Term Supply
Agreement (“Agreement IV”) is effective from
November 13, 2008 to December 31, 2020. The agreements
require Kyocera to make significant initial payments to
assist Hemlock's expansion of its existing polysilicon
production facilities in the United States.
the parties entered into the agreements, the global solar
industry was affected by the Chinese government's
intervention. Specifically, the Chinese government provided
subsidies to Chinese solar-based companies and facilitated
large-scale “dumping” of Chinese solar panels
into the global market in order to increase Chinese market
share in the solar industry. In response, in 2012 the United
States government imposed anti-subsidy and anti-dumping
import tariffs of 24-36 percent on Chinese solar components.
These state actions caused the prices of both polysilicon and
solar panels to drop precipitously.
response to the falling market prices, the parties agreed to
short-term contract modifications in 2011 and 2012 that
lowered the gross price and the advance payment for those
years. These modifications did not affect any other contract
terms or future pricing schedules. While the short-term price
amendments came to an end, the Chinese market saturation and
resulting trade war did not. From mid-2014 to early 2015,
Kyocera proposed additional price modifications, all of which
failing to reach a modification agreement, Kyocera sent
notice to Hemlock in February 2015 that it was exercising a
force majeure provision of Agreement IV. Hemlock refused to
recognize Kyocera's invocation of any force majeure
rights, contending that the force majeure provision in
Agreement IV did not excuse Kyocera from performance because
of the changing solar-market conditions. Consequently, on
February 13, 2015 Kyocera filed suit in Michigan State Court
seeking a declaration that its contractual performance could
be excused by Agreement IV's force majeure clause. On
June 16, 2015, the Michigan State trial court granted
Hemlock's motion for summary disposition, finding that
the change in market conditions did not implicate Agreement
IV's force majeure clause. On December 3, 2015, the
Michigan Court of Appeals affirmed, explaining that Kyocera
had assumed the market risks that gave rise to the alleged
liability and that “the plain language of the force
majeure clause at issue does not permit relief to plaintiff
on the grounds that the market for polysilicon has shifted,
regardless of the cause of that shift.” Kyocera
Corp. v. Hemlock Semiconductor, 15-025786-CK *2 (Mich.
Ct. App. Dec. 3, 2015), ECF No. 58 Ex. A.
February 26, 2015 Hemlock sent Kyocera a demand for adequate
assurances that it would perform under Agreements I-III
pursuant to MCLA § 440.2609. Compl. ¶ 28. Kyocera
sent Hemlock a response on March 26, 2015, arguing that
Kyocera had no obligation to provide written assurances to
Hemlock and that MCLA § 440.2609 did not apply to the
supply agreements. Id. at ¶ 29. Hemlock then
initiated the instant suit on April 1, 2015 alleging that
Kyocera had failed to provide Hemlock with adequate
assurances that it would make purchases under the supply
agreements in 2015. Am. Compl. ¶ 28. On April 3, 2015,
Kyocera filed a complaint against Hemlock in the Civil
Division of Tokyo District Court in Japan, alleging that
Hemlock violated Japanese antitrust law by abusing a superior
position of bargaining power in entering into the supply
filed an amended complaint on April 29, 2015, asserting that
Kyocera had failed to provide adequate assurances of
performances under MCLA § 440.2609 and had repudiated
Supply Agreements I-III. ECF No. 4. Hemlock also sought a
declaratory judgment that Agreements I-III were not
unconscionable, and an anti-suit injunction to prevent
Kyocera from prosecuting a related action in Tokyo.
Id. Kyocera filed its answer together with six
counterclaims on July 10, 2015. ECF No. 9. On January 6, 2016
the Court granted Hemlock's motion to dismiss
Kyocera's counterclaims and granted Hemlock's motion
to strike Kyocera's Japanese antitrust defense. ECF No.
March 11, 2016, this matter was consolidated with a related
action between Hemlock LLC and Kyocera regarding the
enforceability of Agreement IV, which was removed from
Michigan state court. ECF No. 83. After consolidation, on
March 18, 2016 Hemlock filed a second amended complaint
asserting three claims against Kyocera: (1) Breach of
contract arising out of a failure to perform 2015 take-or-pay
obligations; (2) Breach of contract regarding attorneys'
fees; and (3) Claim for a declaratory judgment that the
supply agreements are not unconscionable. See Am.
Compl. II, ECF No. 85. On April 8, 2016 Kyocera filed an
amended answer and six counterclaims. Am. Answer, ECF No. 89.
Pursuant to a motion to strike filed by Hemlock, the Court
issued an order striking four of the counterclaims as
redundant under Federal Rule of Civil Procedure 12(f).
See ECF No. 100. Kyocera has two counterclaims
remaining: (1) Claim for a declaratory judgment that
“Take or Pay” clauses in Agreements I-IV are
unenforceable penalties; and (2) Claim for a declaratory
judgment that “Acceleration” clauses in
Agreements I-IV are unenforceable penalties.
was initially stayed on July 11, 2016 to provide the parties
an opportunity to consensually resolve the case, and then
stayed through the 2016 calendar year to allow Kyocera to
perform on the 2015 contracts. See ECF Nos. 117,
121, 123. After Kyocera completed purchase of the polysilicon
volume required for the 2015 year, on December 12, 2016 the
parties stipulated to the ...