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BRC Rubber & Plastics Inc. v. Continental Carbon Co.

United States District Court, N.D. Indiana, Fort Wayne Division

August 22, 2019

BRC RUBBER & PLASTICS, INC., an Indiana corporation, Plaintiff,
v.
CONTINENTAL CARBON COMPANY, a Delaware corporation, Defendant.

          OPINION AND ORDER

          Susan Collins United States Magistrate Judge

         In this breach of contract action governed by Indiana law, Plaintiff BRC Rubber & Plastics, Inc., an Indiana corporation (“BRC”), alleges that Defendant Continental Carbon Company, a Delaware corporation (“Continental”), repudiated an agreement to supply BRC with carbon black. BRC seeks to recover costs that it incurred in purchasing carbon black from another supplier.[1]

         The Court held a two-day bench trial on April 23 and 24, 2019. (DE 216; DE 217). Following the preparation of a transcript (DE 219; DE 220), [2] the parties submitted proposed findings of fact and conclusions of law (DE 225; DE 226).

         After examining the entire record, considering the arguments of counsel, and determining the credibility of the witnesses and evidence, the Court makes the following Findings of Fact and Conclusions of Law in accordance with Federal Rule of Civil Procedure 52(a) based upon a preponderance of the evidence.

         I. FINDINGS OF FACT

         BRC manufactures and sells molded rubber and plastic products primarily for the automotive industry. (Tr. 7, 233). BRC creates these products using an agent known as carbon black, which mixes into the rubber compound of the final product. (Tr. 8). Carbon black comes in three grades: N300, N500, and N700. (Tr. 8). Pricing carbon black is based on three components: the base or baseline price, an adjustment for the price of oil, and an adjustment for the price of natural gas.[3] (Tr. 15).

         Continental began supplying carbon black to BRC in the mid-1990s and served as BRC's sole supplier of carbon black through mid-2011. (Tr. 9-10). Thomas Nunley, former regional sales manager for Continental, was Michael Cornwell's, vice president of materials at BRC, only point of contact at Continental through the beginning of May 2011. (Tr. 33, 198).

         In late 2009, BRC and Continental executed the Supply Agreement (the “Agreement”). (Tr. 16-17; Ex. 7). The relevant terms of the Agreement are as follows:

• The Agreement was effective on January 1, 2010, and would expire on December 31, 2014;
• The Agreement states that “[i]t is the intent of this Agreement” that Continental “agrees to sell” to BRC “approximately 1.8 million pounds of carbon black annually;
• The volume of carbon black sold to BRC was “to be taken in approximately equal monthly quantities”;
• The chart below represents the baseline price for the corresponding grades of carbon black:

Grade

Baseline Price

N339

$0.4600/lb

N550

$0.4300/lb

N762

$0.4300/lb

(Ex. 7).

         In early April 2011, Continental internally discussed increasing the price of carbon black for all of its customers. (Tr. 185; Ex. 15). Around that time, Continental informed its customers that it would be unable to provide grade N700 carbon black between May 9 and 24, 2011. (Tr. 16; Ex. 13). However, Nunley advised Don Newman, a senior buyer at BRC, that Continental could supply a shipment of grade N762 for delivery in the first week of June. (Tr. 17; Exs. 16, 17).

         On April 14, 2011, Nunley advised Cornwell that Continental was increasing the baseline price for carbon black by two cents per pound. (Ex. 18). Cornwell called Nunley to object to the price increase, and the two agreed that the price increase violated the Agreement. (Tr. 28-29). Nunley said that he would try to get the price increase rescinded. (Tr. 28-29, 187, 193). However, Nunley's direct supervisor, Thomas Moccia, refused to rescind the price increase, reasoning that BRC could not get carbon black elsewhere. (Tr. 187). Moccia instructed Nunley to withhold shipping to BRC unless it agreed to the price increase. (Tr. 192, 196-97).

         Cornwell emailed Nunley on April 15, 2011, reiterating his objection to the price increase and advising Nunley that BRC would “do whatever necessary” to enforce the Agreement. (Ex. 19). Nunley passed this on to Moccia, but nobody from Continental responded to Cornwell. (Exs. 74, 75 Thomas Moccia Dep. 51).

         Cornwell and Charles Chaffee, CEO at BRC, felt anxious because Continental's actions could have delayed carbon black shipments, which would disrupt BRC's fulfillment of its customers' demands. (Tr. 31-33, 232). If BRC failed to fulfill its customers' demands the results could have been “devastating” for BRC's business. (Tr. 31-33, 232).

         Between April 15 and 27, 2011, Cornwell did not receive correspondence from Continental regarding the price increase. (Tr. 30). Newman contacted Sandra Haney, a senior customer service representative at Continental, on April 26, 2011, and asked her to confirm a purchase order for 110, 000 pounds of grade N550 carbon black to be delivered on May 11, 2011;[4] 110, 000 pounds of grade N550 carbon black to be delivered on May 18; and 140, 000 pounds of grade N762 carbon black to be delivered in the first week of June.[5] (Ex. 21). This purchase order was priced according to the Agreement. (Ex. 21).

         On April 27, 2011, Cornwell sent a letter to Nunley, reiterating BRC's opposition to the price increase and advising Nunley that BRC would not pay for shipments of carbon black that were not priced according to the Agreement. (Ex. 22). Cornwell did not receive a response from Continental. (Tr. 31).

         On April 29, 2011, Nunley told Cornwell that Moccia instructed him to refrain from contacting BRC “and that if BRC decide[d] to pursue legal action against Continental, they [would] delay/withhold shipment of [carbon black].” (Tr. 31, 197-98; Ex. 22; Exs. 74, 75 Moccia Dep. 68). BRC became increasingly concerned. (Tr. 31-32; Ex. 23). At the request of Greg Finch, president at BRC, Cornwell estimated BRC's inventory and usage of carbon black. (Tr. 97; Ex. 24; Ex. 74 Alan Colwell Dep. 17-18). As of May 2, 2011, BRC had about 2.1 months supply of grade N550 carbon black, five months supply of grade N339 carbon black, and 1.8 months supply of grade N762 carbon black. (Ex. 24).

         On April 29, 2011, Linda Nelson, who worked in the customer service department at Continental, informed Newman that Continental could not confirm the shipment dates requested in the April 26 purchase order. (Ex. 26). Moccia confirmed in an internal email that Continental was not shipping carbon black to BRC because Continental had “negative [gross profit]” margins on BRC's account. (Ex. 26; Exs. 74, 75 Moccia Dep. 64-65).

         On May 9, 2011, Moccia and attorney Russ Guttshall, in-house counsel to Continental, fired Nunley for not “accomplish[ing] his sales duties and his objectives with respect to obtaining margin and volume from his core customers and future target accounts, including BRC.” (Exs. 74, 75 Moccia Dep. 68; see also Tr. 206-07). On May 10, Nunley informed Cornwell that Continental had terminated him. (Tr. 35, 207, 218; Ex. 25).

         Also, on May 10, Cornwell sent an email to Moccia requesting a written response to his April 27 letter no later than May 20, 2011.[6] (Ex. 27). Cornwell tried to reach Moccia via telephone prior to emailing him but was unsuccessful. (Ex. 27). Moccia responded to Cornwell's email by indicating that David Word, sales manager at Continental, would contact Cornwell regarding the issue. (Tr. 38; Ex. 28).

         Cornwell got in touch with Word and explained that Continental had typically provided BRC with “updated pricing reflecting adjustments due [to] changes in [] feedstock prices” by the tenth day of every month. (Ex. 29). However, as of May 11, BRC had not received the June pricing spreadsheet. (Ex. 29). Cornwell advised that “if [BRC] was going to continue doing business with Continental” it needed pricing for its next order. (Tr. 39; Ex. 29). Cornwell also repeated BRC's objection to the price increase. (Ex. 29). Word responded that baseline pricing was out of his control and that he was not familiar with the pricing spreadsheet that Cornwell referred to. (Tr. 39-40). After this conversation, Cornwell felt that nobody at Continental had a working understanding of BRC's relationship with Continental. (Tr. 40).

         On May 13, 2011, Word told Cornwell that Continental could not “ship product in accordance with” the April 26 purchase order, which Cornwell found “totally unacceptable.” (Tr. 41; Ex. 30). Cornwell stated that Continental's delay in shipping jeopardized “BRC's ability to satisfy [its] customers, ” and that BRC would not allow this to occur. (Ex. 30). Word did not respond to Cornwell's objection.[7] (Tr. 42).

         To avoid depleting BRC's inventory of grade N762 carbon black, Cornwell began looking for a “cover” supplier.[8] (Tr. 42). Cornwell contacted Randy Heldman of Sid Richardson, one of Continental's competitors, who was able to provide a railcar of grade N762 carbon black for shipment in 30 days at a “spot rate, ” which was higher than the price for grade N762 carbon black in the Agreement. (Ex. 32; see Tr. 43, 49). Cornwell also inquired whether Sid Richardson would be interested in supplying all of BRC's carbon black needs in the future. (Exs. 32, 33). Around this time, BRC believed that Continental would not supply any carbon black unless BRC agreed to the price increase. (Tr. 45, 162, 246-47; Ex. 74 Cornwell Dep. 123).

         On May 16, 2011, BRC's outside counsel, Daniel Sharkey, drafted a letter to Moccia's attention. (Ex. 31). The letter broadly identified two issues with respect to Continental's performance under the Agreement: (1) Continental had not shipped carbon black to BRC pursuant to the April 26 purchase order; and (2) Continental's request for a price increase was “simply unacceptable.” (Ex. 31). Sharkey advised Moccia that the letter constituted BRC's demand for written assurance under the Uniform Commercial Code (“U.C.C.”) § 2-609 that Continental would abide by the terms in the Agreement. (Ex. 31). Sharkey demanded that Continental provide assurance before the close of business on May 18, 2011, or face legal action. (Ex. 31).

         On May 17, 2011, Newman sent an email to Haney requesting confirmation by 4:00 p.m. that day regarding whether Continental would supply a railcar of carbon black grade N762 for delivery in the first week of June in accordance with the April 26 purchase order. (Ex. 34). Haney responded at 8:26 p.m. that Word and Nelson were working on his request and that she would provide an answer by the next day. (Ex. 34).

         Also, on May 17, 2011, Guttshall left Sharkey a voice message stating that he represented Continental in the dispute with BRC. (Ex. 35). However, Guttshall did not provide his contact information. (Ex. 35). Thus, Sharkey contacted Moccia to obtain Guttshall's contact information and requested that Moccia inform BRC whether it would be able to provide a shipment of grade N762 carbon black for June delivery. (Ex. 35). Sharkey emphasized that BRC had contacted another supplier (Sid Richardson) for a “cover” shipment of N762, and that BRC needed a response from Continental before 11:00 a.m. on May 18, 2011-the deadline provided by the alternative supplier for the cover shipment. (Ex. 35).

         At 11:04 a.m. on May 18, Moccia informed Sharkey that Continental did “not have N762 available at the moment.” (Exs. 35, 36). About an hour later, BRC ordered 130, 000 pounds of carbon black grade N762 from Sid Richardson. (Tr. 46; Ex. 38). Cornwell estimated that this shipment would not arrive until late June or July 1 (Tr. 46), approximately a month later than the shipment of grade N762 carbon black that Nunley told Newman would arrive the first week of June (Exs. 16, 17). There is no evidence that Continental provided BRC with written assurance that it would comply with the Agreement by the close of business on May 18.

         On May 20, 2011, Nelson informed Newman that Continental could fulfill the April 26 purchase order with modified shipping dates. (Ex. 40). One railcar of grade N550 carbon black could ship on May 25 and two railcars of carbon black (one railcar of grade N550 and one railcar of grade N762) could ship on June 6.[9] (Ex. 40). However, the price of these shipments was higher than the baseline price in the Agreement, which BRC found unacceptable. (Exs. 40-42). Cornwell called Moccia, but the call went to voicemail and Moccia did not return the call. (Tr. 49; Ex. 41). Cornwell asked Moccia to provide a written answer regarding whether “Continental Carbon intend[ed] to honor the supply agreement with BRC or not.” (Ex. 41). About two hours later Moccia emailed Cornwell, stating: “I suggest you call another supplier[, ] Mike[.] Tom.” (Ex. 43). Cornwell and Chaffee interpreted Moccia's email as stating that Continental would not supply carbon black to BRC according to the Agreement. (Tr. 51, 249; Ex. 74 Chaffee Dep. 12).

         Later that day, Guttshall contradicted Moccia's email and informed Sharkey that Continental would continue to timely ship in accordance with the Agreement and not cut off supply to BRC. (Exs. 44, 45). Because of this email, BRC briefly believed that its problems with Continental had been solved. (Tr. 53, 301-02). Accordingly, Cornwell emailed Moccia, inquiring when Continental would ship the three railcars of carbon black described in the Modified April 26 Purchase Order.[10] (Tr. 53; Ex. 45). Moccia responded that Continental could “ship one [rail]car next week and do the best [it] [could] re future orders based on [its] intent to supply 1.8 million lbs[.]” (Tr. 53; Ex. 46). Cornwell, who believed that Continental was obligated to provide three railcars, found Moccia's response unacceptable. (Tr. 53-55).

         On May 23, 2011, Newman asked Moccia to confirm whether Continental would ship three railcars as described in the Modified April 26 Purchase Order. (Ex. 47). Moccia responded that Continental “intended to ship” an annual total of 1.8 million pounds of carbon black to BRC and that it was ahead of schedule for 2011. (Ex. 47). Newman still did not understand whether Continental would ship three railcars of carbon black and requested that Moccia clearly state whether he would support the shipping dates provided in the Modified April 26 Purchase Order. (Ex. 47). Newman also requested that Continental provide the June pricing spreadsheet. (Ex. 47).

         On May 24, 2011, Moccia responded that Continental could only ship one railcar at that time and would do the best it could in the future, but that it would “not short other customers as [it] [was] supplying [BRC] based on [the] agreement[.]”[11] (Ex. 47). Cornwell tried to call Moccia numerous times but Moccia did not answer and did not return his calls. (Tr. 56-57).

         Newman again asked Moccia to confirm whether Continental would ship according to the dates in the Modified April 26 Purchase Order. (Ex. 49). Moccia replied that Continental had shipped 1.2 million pounds of carbon black to BRC to date for 2011 and it was shipping one railcar of grade N550 carbon black on May 25. (Ex. 49). However, Moccia reiterated that it was Continental's intent to supply 1.8 million pounds of carbon black in approximately equal monthly quantities, which amounted to 150, 000 pounds per month, and that BRC had purchased 300, 00 pounds per month year to date in 2011. (Ex. 49). Moccia stated that Continental would “continue to do [its] best to supply BRC” and that he would advise BRC when another railcar of grade N550 carbon black would be shipped. (Ex. 49). At this point, BRC lacked confidence that Continental would adhere to the Modified April 26 Purchase Order or the Agreement. (Tr. 58).

         On May 26, 2011, Word advised that Continental shipped one railcar of grade N550 carbon black the day before and inquired whether BRC would want grade N550 or grade N762 carbon black for its next order. (Ex. 56). Two days later, Cornwell received Continental's June pricing spreadsheet, which reflected a two-cents-per-pound baseline price increase for carbon black. (Tr. 60; Ex. 54). The pricing spreadsheet undermined Guttshall's commitment on May 20 that Continental would ship according to the terms of the Agreement, and compelled BRC to conclude that Continental would not ship carbon black unless BRC paid two cents more per pound. (Tr. 60-61).

         On June 2, 2011, BRC terminated the Agreement in a letter drafted by Cornwell.[12] (Ex. 55). The letter states:

[Continental] has repeatedly, and continually, made it clear to BRC that [Continental] will not supply BRC with BRC's actual quantity requirements of three listed grades ...

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