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Hemlock Semiconductor Corp. v. Kyocera Corp.

United States District Court, E.D. Michigan, Northern Division

May 2, 2017

HEMLOCK SEMICONDUCTOR CORPORATION, et al., Plaintiff,
v.
KYOCERA CORPORATION, Defendant.

          ORDER GRANTING HEMLOCK'S MOTION TO DISMISS, DISMISSING KYOCERA'S FIRST AND SECOND COUNTERCLAIMS, AND OVERRULING KYOCERA'S OBJECTIONS

          THOMAS L. LUDINGTON United States District Judge.

         The 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.

         On May 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.

         I.

         Beginning 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.

         A.

         After 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.

         In 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 Hemlock rejected.

         After 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.

         B.

         On 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 agreements.

         Hemlock 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. 61.

         On 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.

         Discovery 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 ...


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