Dietec Co., Ltd. v. Osirius Group, LLC

          DAVID R. GRAND JUDGE.

          OPINION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS [12]

          LAURIE J. MICHELSON U.S. DISTRICT JUDGE

         This case presents an interesting issue as to what damages a seller may recover under the Uniform Commercial Code.

         In 2014, Plaintiff Dietec Co., Ltd., contracted with Defendant Osirius Group, LLC, to design and manufacture dies that would be used to make auto parts. The purchase orders for the dies provided that Osirius would pay as Dietec hit various performance milestones. For instance, Osirius was to pay Dietec 25% of the price of the dies “after casting.” Dietec says Osirius did not pay according to the schedule. And Dietec claims that Osirius's late payments forced it to incur greater costs to make the dies, including taking out a high-interest loan to cover the costs of supplies. Dietec also says that because Osirius did not pay on time, its financial condition became compromised to the point where it could not obtain other manufacturing contracts. Dietec sued Osirius to recover for, among other things, the increased costs it incurred to make the dies and the other jobs it lost.

         Osirius has filed a motion to dismiss virtually all of Dietec's complaint. As to Dietec's breach-of-contract claim, Osirius asserts that the parties' transaction was governed by Michigan's Uniform Commercial Code, that under the UCC sellers cannot recover consequential damages, and that the increased performance costs and lost jobs were consequential damages. Osirius further argues that Dietec's other four counts fail to state a claim upon which relief may be granted.

         The Court agrees in part with Osirius. The UCC does govern Dietec's sale of dies, under the UCC sellers cannot recover consequential damages, and the jobs Dietec allegedly lost due to Osirius's alleged breach are consequential damages. But, as explained in detail below, Osirius has not persuaded the Court that Dietec's increased performance costs are consequential (as opposed to incidental) damages. As such, and for the reasons set forth below, the Court will grant in part and deny in part Dietec's motion.

         I.

         A.

         Dietec is a South Korean company that makes press dies for auto parts. (R. 10, PID 58.) (A “press die” or “die” is a tool that shapes or molds material.) Half of Dietec's annual revenue comes from Groupe Renault, Nissan Motor Company, or the Renault-Nissan Alliance. (R. 10, PID 58.) Between 2010 and 2016, Dietec completed 22 contracts with one of these three entities. (R. 10, PID 58-59.) The average annual value of the contracts was over $8 million. (Id.)

         In 2014, Renault, under the codename HHA Brasil Project, was developing a new sport utility vehicle. (R. 10, PID 56, 60.) Renault selected Dietec's bid to work on the project. (R. 10, PID 60.)

         On October 8, 2014, Osirius, in its capacity as Renault's manufacturing consultant on the HHA Brasil Project, issued two purchase orders to Dietec. (R. 10, PID 56, 60; R. 12, PID 118, 120.) Osirius issued a third order to Dietec on March 13, 2015. (R. 12, PID 122.) Each purchase order was for a number of dies, twelve in all. (See R. 12, PID 118-20.) The purchase orders provided the price Osirius would pay for each die. For example, for the die that would make the inner panel of the SUV's front door, Osirius agreed to pay $773, 099. (See R. 12, PID 118.) The total amount Osirius was to pay Dietec under the three purchase orders was just over $9 million. (See R. 10, PID 63.)

         Central to this case is that the purchase orders provided that the $9 million was to be paid according to the following schedule: Dietec would receive 10% upon invoicing, another 25% after casting, another 20% after producing the first sample, another 10% 60 days after that, another 25% after “buy off in Korea, ” and the final 10% “after Renault final approval.” (R. 12, PID 118.) Dietec agreed to this payment schedule “for the very purpose of ensuring that it had enough cash on hand to cover the costs of the [p]roject.” (R. 10, PID 61-62.) In particular, “as Dietec received funds from Osirius, it planned to use such funds to cover the costs of the proceeding stage [sic] of production.” (R. 10, PID 64.) Dietec says that “[d]uring contract negotiations, Dietec informed Osirius of the manner in which Dietec planned to fund the [p]roject” and so Osirius “knew that Dietec had no other ready source of significant financing to cover its costs of production.” (R. 10, PID 64.)

         Although Osirius paid Dietec the initial 10% according to the payment schedule, Dietec says that the remainder of Osirius's payments were late. Dietec completed casting in March 2015 and thus 25% of the contract price, $2.26 million, became due. (See R. 10, PID 63.) Yet in May, June, and July 2015, Osirius's payments totaled only $800, 000. (See R. 10, PID 63.) Although Osirius paid Dietec another $900, 000 in August 2015, this meant that it still had paid only about $1.7 million of the $2.26 million owed for casting. (See R. 10, PID 63.) In October 2015, Osirius paid Dietec another $1.3 million. (See R. 10, PID 63.) But, by that time, Dietec had hit the first- sample and 60-days-after-first-sample milestones, triggering those two payments (another 20% and 10%, respectively). (See R. 10, PID 63.) As such, Osirius was still not current under the payment schedule. Indeed, it was not until August 2016 that Osirius caught up: by that point it had paid Dietec a total of $8.5 million whereas a total of about $8.1 million had become due under the payment schedule. (See R. 10, PID 63.)

         Despite Osirius's delayed payments, Dietec was able to “fulfill all its obligations under the parties' agreement, including the design, manufacture, packing, shipping, and installation of the [dies and samples] to the satisfaction of Osirius and Renault.” (R. 10, PID 56.) Indeed, in October 2016, Renault gave its final approval, thereby obligating Osirius to pay Dietec the final 10% of the $9 million total. (See R. 10, PID 63.) As Osirius had already paid $8.5 million, Dietec was owed about $540, 000 more. (R. 10, PID 63.) Dietec says that Osirius agreed to pay this remaining balance, but then never did so. (See R. 10, PID 69-70.)

         Osirius's failure to pay according to the payment schedule made it more costly for Dietec to perform. Or, in Dietec's words, Osirius's breach “wreaked havoc” on “Dietec's ability to obtain required materials and to manufacture the [dies and samples] in a timely manner.” (R. 10, PID 62.) In particular, Dietec's executives spent “significant time” to secure raw materials “without proper financing.” (R. 10, PID 72.) Dietec was also “forced” to secure a “high interest” $1.8 million loan “to cover its costs of production and continue to perform under the [purchase orders].” (R. 10, PID 65.) Further, because Dietec scheduled its loan payments several days after it was slated to receive a payment from Osirius, when Osirius did not pay on time, Dietec incurred late fees on the loan. (See R. 10, PID 66, 72.) Not only that, but Dietec's lender also “lost confidence in Dietec's ability to repay the [l]oan.” (R. 10, PID 66.) Osirius's failure to pay according to the payment schedule also meant that Dietec could not use “standard” cost-saving strategies that it had factored into the die prices. (R. 10, PID 66.)

         Dietec also claims that Osirius's failure to adhere to the payment schedule adversely affected (and still adversely affects) its ability to secure other jobs from Renault and Nissan, including the “LJC Project.” In the summer of 2016, Renault accepted Dietec's bid to work on the LJC Project. And in September 2016, the Renault-Nissan Purchase Organization visited Dietec to evaluate Dietec's performance as a supplier; Dietec was given “excellent” scores by both Renault and Nissan. (R. 10, PID 68.) Around this time, the parties agreed on all “material terms” of the LJC Project, including a contract price of $6.5 million. (R. 10, PID 68.) On September 20, 2016, however, Renault informed Dietec that its “supplier rating with Renault and Nissan” had been decreased from “C” status to “D” status. (R. 10, PID 67.) Renault's email provided that the drop was not based on Dietec's manufacturing performance, but “entirely on Dietec's poor 2015 financials.” (R. 10, PID 67.) A subsequent investigation by Dietec and Renault “revealed that the downgrade was caused by Osirius's delinquencies.” (R. 10, PID 68.) Dietec says that because Osirius had not paid timely and had not paid the final $540, 000 at all, it was “unable to immediately improve its financial condition.” (R. 10, PID 68.) “Renault [thus] revoked its acceptance of Dietec's bid on the LJC Project.” (R. 10, PID 69.) Further, because suppliers with a “D” status are barred from bidding on Renault or Nissan jobs (R. 10, PID 67), Dietec claims that it is losing over $8 million in contracts per year (R. 10, PID 69).

         B.

         Dietec filed this lawsuit to get Osirius to compensate it for the increased costs it incurred in making and delivering the dies for the HHA Brasil Project, for the other Renault and Nissan jobs it has lost as a result of its compromised financial condition (including the LJC Project), and for the remaining $540, 000 under the purchase orders. (See R. 10.) Dietec's amended complaint seeks this relief via five legal theories: breach of contract (the purchase orders), unjust enrichment (as a backup to the breach-of-contract claim), tortious interference with a contractual relationship (the LJC Project), tortious interference with business expectancies (the LJC Project and other Renault or Nissan jobs), and fraudulent inducement (that Dietec had no intent to pay on time when it issued the purchase orders). (See R. 10.)

         Osirius has moved to dismiss almost all of Dietec's amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Osirius asks the Court to dismiss Dietec's breach-of-contract claim insofar as the relief sought is anything other than the remaining $540, 000 balance under the purchase orders. (R. 12, PID 99.) And, for multiple reasons, Osirius asks the Court to dismiss Dietec's four other counts in their entirety. (R. 12, PID 116.)

         II.

         When, as here, a defendant moves to dismiss pursuant to Rule 12(b)(6), the plausibility standard articulated in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), governs. Under that standard, a court first culls legal conclusions from the complaint, leaving only factual allegations to be accepted as true. Iqbal, 556 U.S. at 679. The inquiry then becomes whether the remaining assertions of fact “allow[] the court to draw the reasonable inference that the defendant is liable[.]” Id. at 678. Although this plausibility threshold is more than a “sheer possibility” that a defendant is liable, it is not a “‘probability requirement.'” Id. (quoting Twombly, 550 U.S. at 556). Whether a plaintiff has presented enough factual matter to “‘nudg[e]'” his claim “‘across the line from conceivable to plausible'” is “a context-specific task” requiring this Court to “draw on its judicial experience and common sense.” Iqbal, 556 U.S. at 679, 683 (quoting Twombly, 550 U.S. at 570).

         III.

         The Court begins with Osirius's arguments for partial dismissal of Dietec's breach-of-contract claim. It then turns to the parties' disputes over Dietec's unjust-enrichment, ...