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Cass, Inc. v. Production Pattern and Foundry Co., Inc.

United States District Court, D. Nevada

March 23, 2017

CASS, INC., a California corporation, Plaintiff,
v.
PRODUCTION PATTERN AND FOUNDRY CO., INC., a Nevada corporation, AKA PRODUCTION PATTERN & FOUNDRY, Defendant.

          ORDER

          LARRY R. HICKS, UNITED STATES DISTRICT JUDGE

         This is a contract dispute between plaintiff CASS, Inc., and defendant Production Pattern and Foundry Co., Inc. (“PPF”) stemming from a series of contracts regarding CASS's sale of aluminum alloy to PPF. PPF has moved for summary judgment on all of CASS's claims (ECF No. 107[1]), and CASS has moved for partial summary judgment on its two separate breach-of-contract claims (ECF Nos. 108-09[2]). PPF has also moved to strike various exhibits that CASS included in its summary-judgment motions (ECF No. 117[3]), while CASS has filed objections to several of PPF's filings (ECF Nos. 119, 120, 130, 131, and 132[4]).

         For reasons discussed below, the court will deny both parties summary judgment on CASS's first breach-of-contract claim. The court will, however, grant CASS summary judgment on its second contract claim, but only as to the unpaid invoice balance and not the contractual interest. Moreover, the court will grant PPF summary judgment on CASS's unjust-enrichment and quantum-meruit claims but deny it summary judgment on the breach of the implied covenant of good faith and fair dealing. The court will also deny PPF's motion to strike.

         I. Background

         CASS is an aluminum distributor[5] for non-party Alcoa, an aluminum producer. PPF is a Nevada-based foundry that works exclusively with aluminum alloy. Because PPF is a relatively small enterprise, it is unable to buy aluminum directly from Alcoa and thus contracts with CASS. One of PPF's clients is non-party PACCAR, a truck manufacturer. Prior to the dispute at issue, PPF purchased aluminum alloy primarily from CASS and used the aluminum to produce aluminum castings for PACCAR.

         This supply chain and its underlying contracts are best understood in reverse. PACCAR would place orders with PPF for aluminum castings. PACCAR does not have a contractual relationship with either PPF or Alcoa. In order to produce the requested parts for PACCAR, PPF would order aluminum alloy directly from CASS through a contractual relationship that will be described shortly. CASS would then contract with Alcoa to fill PPF's aluminum orders. Alcoa does not have a contractual relationship with PPF or PACCAR.[6]

         Prior to the beginning of each new calendar year, PPF would estimate its aluminum needs for that upcoming year based on projected orders provided by PACCAR. PPF would then contract with CASS, committing to purchase a specific quantity of aluminum from CASS for the upcoming year for a fixed price per pound. The parties refer to this type of transaction as a “hedge.” These contracts would take the form of a “sales order” sent from CASS to PPF, specifying the pounds of aluminum that PPF was committing to purchase and the fixed price per pound.[7] E.g., ECF No. 107-1 at 9.

         The benefit of forming a hedge is that PPF is guaranteed the contracted fixed price per pound for that quantity of aluminum, even if the current market price of aluminum alloy increases during the calendar year.[8] ECF No. 108 at 4. Conversely, there is a risk that the market price can fall below the fixed price, resulting in PPF being contractually obligated to purchase aluminum at a higher-than-market price. Id. Additionally, as demonstrated in this dispute, PPF is obligated to purchase the contracted quantity of aluminum, even if PPF's actual demand for aluminum during the year falls short of this amount.

         In order to supply PPF the contracted quantity of aluminum at a fixed price, CASS would separately contract with Alcoa for a corresponding quantity at a fixed price. Id. at 5. In order to guarantee this fixed price, Alcoa would hedge the quantity of aluminum in the futures market. Id. Accordingly, the quantity of aluminum ordered by PPF for a particular year could not be adjusted, a fact reiterated in the relevant sales orders between CASS and PPF, as well as the contracts between Alcoa and CASS. E.g., ECF No. 107-1 at 9.

         Although PPF would contractually commit to purchasing a fixed quantity of aluminum for the next calendar year, it was not required to either receive or pay for the entire quantity up front. Instead, PPF would periodically send CASS purchase orders throughout the contracted year for a specific quantity of aluminum that PPF needed in order to fill PACCAR's orders. ECF No. 106 at 4. Each purchase order would be drawn from the total contracted quantity and shipped to PPF. Id. CASS would then invoice PPF for that specific aluminum shipment, with payment due within thirty days.

         PPF asserts that the sales orders did not require it to commit to a firm delivery schedule with CASS-i.e., one in which PPF was required to receive monthly shipments of a fixed or minimum quantity of aluminum. Id. PPF alleges that it could not commit to a firm delivery schedule and that a long-term custom and practice had developed between itself and CASS, whereby PPF would only place purchase orders with CASS based on PPF's “current production requirements.” Id. In other words, PPF would not order aluminum from CASS until after PPF had received a production order from PACCAR. Id. PPF alleges that it would normally place orders with CASS on a weekly or semi-weekly basis. Id. At no point does CASS directly address this contention or offer a conflicting narrative.

         During the summer of 2007, CASS and PPF entered into three separate sales orders to provide PPF with aluminum alloy at a fixed price for 2008. It is undisputed that these sales orders were later consolidated into a single contract, Sales Order 17675 (the “2008 sales order”), wherein CASS agreed to sell and PPF agreed to purchase 3, 060, 000 lbs. of aluminum alloy at a fixed price per pound. ECF No. 108 at 4-5; ECF No. 107-1 at 9.

         At this juncture, the case's facts diverge into two streams. CASS has brought two separate breach-of-contract claims, and each factual stream is relevant to a different claim.

         A. First breach-of-contract claim

         This first claim is premised on the undisputed fact that PPF did not purchase over 400, 000 lbs. of aluminum from the 2008 sales order. The claim is also premised on the undisputed fact that PPF did not purchase any of the aluminum from the 2009 sales orders, [9]which are described immediately below.

         1. Modification of 2008 sales order & formation of 2009 sales orders

         Due to the economic downturn that began in 2007, PPF realized in May 2008 that, for the first time in its relationship with CASS, it would not be able to purchase all of the hedged aluminum it had contractually committed to purchasing. ECF No. 106 at 5. Thus, in mid-2008, CASS agreed to allow PPF to “carry over” the unused portion of the 2008 aluminum into 2009 at a penalty of .005 cents per pound per month. Id.

         There is a lack of clarity, however, regarding the terms of this modification. PPF asserts that the modification of the 2008 sales order allowed PPF to carry over the unused portion of the 2008 aluminum until the end of 2009. E.g., id. Because there was a per-month penalty, the longer into 2009 it took PPF to purchase the 2008 aluminum, the higher the penalty per pound would be. Conversely, CASS asserts-for the first time in its first summary-judgment motion-that “PPF was expected to take delivery of the remaining aluminum in January and February 2009.” ECF No. 108 at 5. CASS never explains this assertion.

         Nonetheless, it is undisputed that, at the same time that PPF and CASS negotiated the modification of the 2008 sales order, they entered into several sales orders for 2009 (collectively “2009 sales orders”). These sales orders, like each prior sales order, guaranteed PPF a quantity of aluminum at a fixed price-in this case, 1, 587, 000 lbs. of aluminum in total. Id. at 6. But unlike the original 2008 sales order, the 2009 sales orders contained an explicit provision that allowed PPF to carry over any unused aluminum from 2009 into 2010: “Total contracted tonnage must be taken during the contracted terms. Tonnage forwarded into 2010 at a $.005/LB penalty per month.” ECF No. 107-1 at 16-19 (emphasis added). These sales orders each set a delivery schedule of quarter 2 through quarter 4 of 2009. Id.

         As discussed above, CASS would contract with Alcoa each year in order to fill its sales orders with PPF. Thus, the 2008 contracts between Alcoa and CASS (“2008 Alcoa contracts”) supplied the aluminum that was guaranteed in the 2008 sales order between CASS and PPF for the latter's purchase of aluminum in 2008-with CASS permitting PPF's carry over into at least some portion of 2009 at a penalty. ECF No. 106 at 4-5; see also ECF No. 107-1 at 12-14. Similarly, the 2009 contracts between Alcoa and CASS (“2009 Alcoa contracts”) supplied the aluminum that was guaranteed in the 2009 sales orders between CASS and PPF-with CASS permitting PPF's carry over into 2010 at a penalty. ECF No. 106 at 4-5; see also ECF No. 107-1 at 21-24.

         2. Alcoa alters its hedging policies

         PPF asserts that the carry-over policy in the modification of the 2008 sales order and the 2009 sales orders partially mirrored provisions in CASS's 2008 and 2009 contracts with Alcoa. The 2008 Alcoa contracts state, “A rescheduling fee of $.005/lb per month will be levied to move any tonnage beyond the hedged month.” ECF No. 107-1 at 12-14. The 2009 contracts had a similar but not identical provision: “If you reschedule any or all committed tonnage for a given month[, ] a rescheduling fee will be assessed at the quoted by our broker to move any tonnage beyond the hedged month.”[10] Id. at 21-24. PPF thus asserts that, by allowing PPF to carry over its unused 2008 and 2009 aluminum into 2009 and 2010 respectively, CASS was merely exercising a similar contractual right in its own contracts with Alcoa.

         However, on October 14, 2008, less than a week after CASS executed the 2009 Alcoa contracts, Alcoa wrote to CASS informing it that Alcoa had “revised” its hedging service. Id. at 61. In order to carry over a hedged month, CASS would now need to seek approval from one of Alcoa's vice presidents. Id. Three months later, on January 22, 2009, an Alcoa sales director emailed a CASS representative informing him that, “[s]ince about a week ago[, ] [Alcoa] management is not allowing us to roll positions forward anymore.” Id. at 63.

         One week later, on January 29, Alcoa emailed CASS, informing it that Alcoa would “no longer move fixed price metal positions forward.” Id. at 167. Alcoa elaborated that its new position meant that CASS would have to either (1) take the aluminum “as priced for the respective monthly quantities” or (2) “the hedge, or a portion of the hedge will need to be ‘unwound' and the mark to market difference will be invoiced . . . .” Id.

         “Unwinding” or “ringing out” a hedge refers to rescinding the contract, which entails the buyer paying the difference between the aluminum's contract price and its market price at the time of rescission. ECF No. 106 at 8.

         3. CASS makes demands of PPF regarding the 2008 & 2009 sales orders

         On February 2, 2009, CASS emailed PPF, informing it that, until PPF returned to “the weekly payment program, ” CASS could not ship any additional aluminum to PPF. ECF No. 108 at 8; ECF No. 108-3 at 74. This reference, although relevant to this first breach-of-contract claim, appears to stem from CASS's second claim, which involves PPF not paying the balance on several invoices for purchase orders it placed under the 2008 sales order. However, this is the only mention in either of CASS's summary-judgment motions of a weekly payment plan, and CASS provides no elaboration.

         On February 13, a conference call took place between PPF and CASS officers and sales representatives. PPF asserts-and CASS does not appear to dispute-that CASS made two primary demands of PPF during this call. ECF No. 106 at 9. First, CASS demanded that PPF convince PACCAR[11] to form a contract committing to either (1) take possession of the remainder of the unused 2008 aluminum (from the 2008 sales order) or (2) unwind the hedges for the remaining aluminum.[12] Id. Second, CASS demanded that PPF convince PACCAR to consent to CASS and PPF modifying the 2009 sales orders to negate the provision allowing PPF to carry over the 2009 aluminum into 2010. Id.

         The parties do, however, dispute whether CASS presented these demands as an ultimatum. PPF alleges that CASS threatened to stop shipping aluminum to PPF starting April 1, 2009, if PPF did not agree to its demands. Id.

         4. Emails between CASS, PPF, & PACCAR regarding CASS's demands

         In support of its assertion, PPF highlights several emails it sent to CASS and PACCAR over the following month.[13] On February 16, 2009, PPF emailed CASS to summarize what terms PPF believed it was expected to present PACCAR based on the February 13 conference call. ECF No. 107-2 at 26. Because the email is presented as bullet points, the content is not completely clear. However, PPF explicitly wrote, “Without these agreements in place PPF/PACCAR takes a risk in Alcoa-CASS stop[ping] shipment of supporting alloys by April 1st.” Id. CASS allegedly never contradicted this email, but rather forwarded it on to Alcoa. ECF No. 106 at 9; ECF No. 107-1 at 178.

         On February 25, PPF once again emailed CASS, “mak[ing] sure” it understood Alcoa's demands before communicating them to PACCAR. ECF No. 107-2 at 28. PPF made no mention of CASS's alleged threat to halt aluminum shipments; however, PPF did discuss CASS's demand that PACCAR contractually agree to negate “the ‘current carry forward option' and [put] in place an agreement to unwind 2009 hedges as they are unused.” Id. CASS replied that “[e]verything looks fine.” Id. at 29. That same day, PPF emailed PACCAR, outlining the following demands by CASS:

CASS/Alcoa will allow PPF to continue to carry the 2008 contract forward into Qtr 2 without unwinding the hedges.
CASS/Alcoa needs, from PACCAR, a signed contract negating the current “carry forward option” and in place an “agreement” to unwind 2009 hedges as they are unused.

Id. at 31. PPF further stated that “Alcoa has made it clear to our broker that they will no longer be offering this carry foreword option and it is imperative that this issue gets resolved prior to April 1st or our broker has instructed us that Alcoa/CASS will stop shipment of aluminum until we can resolve this matter.” Id. PPF then forwarded this email to CASS. Id.

         PPF alleges that on March 3, 2009, CASS, due to demands from Alcoa, pushed the April 1 deadline for acceding to the above-mentioned demands forward to March 6. ECF No. 106 at 10. PPF cites to an email from CASS in which CASS stated that Alcoa would “liquidate”- presumably unwind-the hedges for the 2008 sales order by March 6 unless PPF provided a “commitment to close out the 2008 hedges or a consumption plan for the outstanding hedged material in March & April that all stake holders can agree to.” ECF No. 107-2 at 38. CASS further stated it would “also need to have a real understanding of 2009 hedges (4 truck loads a month)[, ] which start April 1st[, ] and planned consumption.” Id. The following day, PPF emailed these demands and the March 6 deadline to PACCAR and forwarded this email to CASS. Id. at 48.

         On March 6, PPF emailed CASS, informing it that “PACCAR is unwilling to sign any agreement that negates the current contract that is in place or to accept any costs associated with unwinding of the current hedges.” Id. at 50. PPF also asked whether “Alcoa intends on stopping shipment if this does not get resolved[, ]” stating that PPF is “concerned that PACCAR is trying to call Alcoa's bluff as to if they will stop shipping or not at the contracted price.” Id.

         On March 09, PPF sent CASS the following email:

I received word form PACCAR and they are reluctant to sign into an agreement that would accept the unwinding of the hedges for 2008-2009. It is their position that PPF hold to the current contract in place and request CASS to seek relief from Alcoa[, ] as it seems they are the ones attempting to modify the contract terms. I understand from past conversations that Alcoa was going to begin invoicing for these hedges and stop shipments until a new agreement was in place. Obviously PPF is unable to cover the cost for unwinding and stopping shipment to us would be even more devastating. Please ask Alcoa to reconsider these changes for all parties involved.

Id. at 56. CASS responded, asking how much aluminum PACCAR would commit to purchasing per month. Id. at 55. PPF replied that PACCAR would not commit to purchasing a fixed quantity of aluminum per month. Id. PPF then asked “CASS to honor the current contract in place and allow PACCAR/PPF to continue the practice of moving metal forward.” Id. CASS did not respond to this email. ECF No. 106 at 11.

         5. PPF purchases aluminum from another supplier & CASS denies threatening to stop aluminum shipments

         On March 12, 2009, PPF placed an aluminum order with Custom Alloy Light Metals (“CALM”), one of CASS's rival distributors.[14] ECF No. 108-3 at 94. PPF continued placing orders with CALM throughout 2009 and 2010, ultimately ordering 1, 760, 731 lbs. and 2, 470, 231 lbs. respectively. Id. at 9 (citing ECF No. 108-3 at 94-126; ECF No. 108-4 at 1-85). PPF alleges that it began ordering from CALM in direct response to the alleged threats by Alcoa and CASS to stop aluminum shipments unless PPF acceded to their demands. ECF No. 106 at 12. PPF asserts that “[a]ny lapse in the delivery of aluminum to PPF would [have] cause[d] PPF to have to shut down completely.” Id. Conversely, CASS alleges that PPF began purchasing from CALM in order to take advantage of the substantially lower aluminum prices available on the “spot market” due to the economic downturn. ECF No. 119 at 29.

         On March 16, PPF informed CASS that it had placed an aluminum order with CALM. See ECF No. 107-2 at 58-59. The following day, CASS emailed PPF, stating that

CASS intends to fill the existing contracts PPF placed on behalf of PACCAR for the 2008 & 2009 Hedged Contracts.
CASS never indicated we would not ship material unless PPF stopped making payments against the outstanding aging due to the large amount past due.[15]
To the contrary, if PPF would provide the shipping schedule as CASS has repeatedly requested, CASS would be happy to ship the balance of the 2008 Hedged Contract promptly to facilitate starting the 2009 Hedged Contract on time.
. . . .
CASS intends to ship your metal per the 2008 & 2009 Hedged Contract until they are complete unless PPF or PACCAR elects to unwind & realize the difference either (positive or negative) for the material that will not be used, per [Alcoa's] request.

Id. (emphasis in original).

         PPF immediately responded, stating that CASS's “email is contradictory to what [PPF] was told by CASS to ask of PACCAR.” Id. at 58. PPF further asserted that “[o]n multiple occasions, [CASS] told [PPF] of April 1st being the cut off date (stop shipment of supporting alloys) if [PPF] could not get PACCAR to sign a new agreement to unwind the hedges and negate the current contract in place.” Id. CASS does not appear to have responded to this email.

         6. Discussion after the CALM purchase

         Following the disagreement over whether CASS threatened to cut off aluminum shipments if PPF did not accede to its demands, the parties continued to communicate regarding the status of the unused portion of the 2008 aluminum and the yet-to-be-used 2009 aluminum. On April 13, 2009, CASS emailed PPF that it “need[s] a response as to where everything currently stands with Paccar[, ]” stating that “[t]he hedges cannot be ignored or pushed out to 2010.” Id. at 79. PPF responded that it is “trying to get PACCAR engaged but they are taking the stance that [PPF] push out the contract and use the metal they have purchased.” Id. It is not clear if PPF was referring to the CALM aluminum or another source.

         In early July 2009, PPF and CASS exchanged a series of emails regarding conversations between CASS's sales representative and a PACCAR representative and the possibility of CASS allowing PPF to carry the 2008 and 2009 aluminum over into 2010. ECF No. 106 at 13; ECF No. 108 at 9; ECF No. 107-2 at 64-65. In this exchange, CASS stated and PPF confirmed that PACCAR verbally agreed to PPF “passing through” the penalties[16] from the 2008 and 2009 sales orders to PACCAR. ECF No. 107-2 at 64.

         However, CASS requested that PACCAR provide written confirmation of this agreement and confirmation that PACCAR would “consume these hedged metal units in 2010.” Id. PPF responded that the request was not possible. It explained that PACCAR's position was that the sales orders at issue were contracts only between PPF and CASS and that PACCAR had not agreed to purchase a certain quantity of aluminum from PPF but had rather agreed to purchase a certain quantity of finished product from PPF. Id. There does not appear to be a response from CASS regarding PACCAR's refusal to commit to purchasing the hedged aluminum.

         Throughout the remainder of July 2009, there were a series of emails exchanged between Alcoa employees regarding the situation and direct conversations with PACCAR. ECF No. 107-1 at 213-20. On July 25, PACCAR's purchasing executive emailed an Alcoa vice president, stating that “[i]t is PACCAR's intention to consume the aluminum currently under a fixed price contract with [PPF] & [CASS] in the 2010 calendar year.” Id. at 223.

         7. Discussions regarding aluminum purchases in 2010

         CASS emailed PPF in October 2009 to “address” the carry over of the 2008 and 2009 aluminum into 2010. ECF No. 108-4 at 111. After several follow-up emails, PPF responded in early November, stating that it would begin consuming the aluminum in early January 2010. Id. at 117. From December 2009 through early March 2010, CASS contacted PPF seeking an answer on when PPF would begin placing orders. ECF No. 108 at 10. On March 27, PPF informed CASS that it would commit to “start taking one load [of aluminum] per month . . . with the possibility to take additional quantity or pay for the unused hedges” at the end of 2010. ECF No. 108-4 at 128.

         On March 29, 2010, PPF sent CASS a purchase order requesting 40, 000 lbs. of aluminum per month for three months, starting April 30, 2010. ECF No. 108-7 at 122. However, the price per pound cited on the order was lower than the price per pound required in the 2008 sales order, even without the per-month carry-over penalty. ECF No. 108 at 10. CASS responded by emailing PPF the correct price and enclosing a sales order for PPF's signature. Id. at 11. After PPF failed to return the form, CASS emailed PPF asking for an update but received no response. Id. (citing ECF No. 108-4 at 140-41).

         On May 19, 2010, PPF emailed CASS confirming its “intent to fulfill the contract for Aluminum hedges[, ]” stating that it would “consume these hedges by taking receipt of the tonnage or unwinding them . . . .” ECF No. 108-4 at 144. Alcoa's sales director, who was copied on this email, responded by asking if PPF would be issuing orders that day, stating that it would no longer be carrying over the hedges and requesting a physical delivery schedule. Id. Alcoa further stated that, if it did not receive an order from PPF that afternoon, it would generate an invoice the following day for the cost of unwinding the hedges, plus the carry-over penalties. Id.

         Apparently acceding to Alcoa's demand, PPF sent CASS a purchase order that same day requesting 40, 000 lbs. of aluminum per month for two months, starting June 30, 2010. ECF No. 108-7 at 124. The price per pound listed in the order was once again below the price fixed by the 2008 sales order, even without the carry-over penalty. Id. CASS emailed PPF on May 24, confirming whether the purchase order was related to the 2008 sales order and asking how PPF calculated the price per pound. ECF No. 108-4 at 148.

         8. Alcoa unwinds the 2008 and 2009 sales orders and invoices CASS

         On May 24, 2010, Alcoa invoiced CASS for $1, 041, 352.60, which represented the cost of unwinding the hedges for a combined 1, 989, 990 lbs.[17] of unused aluminum from the 2008 and 2009 sales orders, plus the carry-over penalties. ECF No. 108 at 12.

         That same day, CASS emailed Alcoa, stating that it had “worked with Alcoa under the impression that Paccar / PPF would have until the end of the year to consume or unwind the outstanding hedges.” ECF No. 107-1 at 66. CASS further stated that its “understanding from reading the contracts is that [CASS was] allowed to roll the hedges forward until year end and would appreciate Alcoa doing so.” Id. Alcoa responded that ...


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