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