Opinion
Civ. No. 3:98-CV-661-H.
April 19, 2000.
MEMORANDUM OPINION
This is a breach of contract case which is scheduled for trial to the Court. Defendant, Envirometric Process Controls, Inc. ("EPC"), has moved for summary judgment on all of Plaintiff's claims. Plaintiff, Behr Systems, Inc. ("Behr"), sued under theories of breach of contract, breach of implied contract and promissory estoppel. Defendant argues that the Site Agreements which are the subject of this action are not legally enforceable express or implied contracts. Moreover, Defendant claims that if these agreements were valid, Behr, not EPC, committed the first material breach. In fact, EPC denies any breach at all.
Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.Proc. 56(c). For purposes of summary judgment, any factual dispute must be resolved in favor of the non-moving party, in this case Plaintiff, unless the evidence presented is so one-sided that reasonable people could not find for the non-moving party. See Betkerur v. Aultman Hosp. Ass'n, 78 F.2d 1079, 1087 — 88 (6th Cir. 1996) ; Street v. J.C. Bradford Co., 886 F.2d 1472, 1479-80 (6th Cir. 1989).
I.
Many of the facts concerning the relationship between EPC and Behr are subject to varying interpretations. The written agreements, not being models of clarity, provide less help than one would have hoped in explaining the relationships.
Behr designs and installs automated paint spraying systems. EPC is in a similar business. Beginning in 1992, Behr used EPC as a subcontractor on some of its projects. Behr developed and installed paint automation systems at Ford and Nissan several years ago. In 1996, Ford sought to upgrade the system at its Louisville plant. Behr hired EPC as a subcontractor for that project. As part of the agreement, Behr and EPC entered into a Non-Disclosure and Site Agreement which read:
In recognition of the close working relationship between Behr Systems, Inc. and EPC, Inc. required in the development of the closed loop fluid control system for Ford LAP, EPC, Inc. will not pursue Behr work without Behr Systems, Inc.'s knowledge and approval at the Ford LAP site.
EPC, Inc. will actively solicit further business at LAP and, if successful, complete future business through Behr Systems, Inc., as mutually agreed where appropriate. However, it is recognized that EPC, Inc. is an independent company and, as such, is able to solicit and obtain contracts direct with the plant not related to Behr equipment. Behr Systems, Inc. acknowledges EPC as their preferred subcontractor for LAP.
A year later, Ford sought another upgrade at the Louisville plant. Again Behr completed the job with EPC's help, and EPC and Behr executed another site agreement with identical terms. March 20, 1997, Nissan hired Behr to upgrade the automated paint system at its Smyrna plant. Behr used EPC as its subcontractor, and both parties executed a site agreement for the Smyrna plant on the same terms as the Louisville Ford plant.
In October of 1997, General Motors requested a quote from Behr, EPC and AEG for an upgrade of Behr equipment. This potential job was not covered by any of the site agreements between Behr and EPC. Behr decided to bid for the job without EPC as a subcontractor. Upon learning of this, EPC bid the job itself. GM awarded the job to Behr, but only after requiring Behr to reduce its price $400,000 to match EPC's bid. As a consequence, a rift developed between Behr and EPC. In December, the two companies met to discuss their future relationship. Behr advised EPC that it would no longer use the company as a subcontractor, although it would use EPC on a "time and materials" basis.
In June of 1998, Ford requested a quote from Behr and EPC. EPC submitted a proposal for the job to Behr, but Behr decided to bid independently. As a result, EPC also bid independently. EPC's bid was lower, and it received the contract. A few months later, Nissan requested bids on work at its Smyrna plant. Behr and EPC both bid independently on the project. Nissan awarded EPC the bid.
II.
EPC argues that the Ford and Nissan site agreements are not legally enforceable. Specifically, EPC claims (1) no meeting of the minds, (2) insufficient consideration, and (3) no mutuality of obligation. The Court finds none of these arguments compelling enough to warrant judgment prior to hearing all the evidence first hand.
To support its argument that there was no meeting of the mind, EPC describes how the site agreements in question are indefinite, ambiguous, and conflicting. This Court agrees that the site agreements were not particularly well drafted. Phrases like "as mutually agreed where appropriate" leave much to be desired. At this time, the Court does not find that the contracts are too indefinite to be enforceable. The site agreements forbid EPC from pursuing Behr work without approval but allow EPC to obtain its own contracts for work that is not related to Behr equipment. Because the contract does not define "Behr work", the Court will need to examine extrinsic evidence to determine the parties' intent. Interpreting each contract as a whole, it is clear, however, that work on Behr equipment was forbidden.
The alleged conflict is easily resolved. The site agreements forbid EPC from pursuing work for its own gain but encourage the company to solicit business that will be performed in conjunction with Behr.
This Court also rejects the argument that the site agreements are merely agreements to agree in the future. While they do contemplate that Behr and EPC will reach an agreement to work together on future work that EPC solicits, they expressly forbid EPC from doing Behr work alone without approval. Behr is not forbidden from doing its work alone, although it must give priority to EPC if it subcontracts part of the job. The agreement to agree to work together in the future may not be enforceable, but the agreement not to compete and to preference EPC are. Likewise, EPC's agreement to agree to a global non-compete contract when the volume of business dictates is probably not enforceable, but EPC's site specific agreements not to compete are.
EPC argues that any ambiguities in the contracts should be construed against Behr as the drafting party. The Court does not find the basic prohibition in the contract ambiguous. Moreover, the extent of EPC's participation in drafting the contracts remains a factual dispute.
EPC also argues that it received insufficient consideration for the site agreements. EPC points out that it had already begun the work at each plant prior to signing the site agreement. This Court is not persuaded. While EPC may have started work prior to signing the site agreement, Behr would not have used EPC as a subcontractor if EPC had not been willing to sign a non-compete agreement. Moreover, the agreements obligated Behr to treat EPC as a preferred subcontractor. This alone would be sufficient consideration to make the contract enforceable.
This much appears clear from the first paragraph of the site agreements.
To counter this consideration, EPC claims a lack of mutual obligation. EPC argues that Behr had no real obligation to EPC under the site agreements. EPC points out that Behr could always perform the work by itself. While this is true, Behr still had an obligation under the contract. If Behr relied on a subcontractor, it was required to preference EPC. This is sufficient to create mutuality of obligation.
III.
Having found the site agreements enforceable, the Court considers whether EPC is entitled to summary judgment because Behr committed the first material breach. As a matter of contract law, the party that commits the first breach, cannot later complain of a subsequent breach by the other party. See Williamson v. Ingram, 49 S.W.2d 1005 (Ky.App. 1932). EPC argues that eight months after the site agreements were executed, Behr announced that it would not use EPC as a subcontractor at any site in the future. EPC claims that this statement constituted a breach of Behr's contractual obligation to use EPC as a preferred subcontractor at the sites covered by the site agreements.
EPC also points out that it submitted a proposal for the 1998 Ford LAP project to Behr before either company submitted a bid to Ford. EPC submit an independent bid only after Behr rejected the proposal to work together.
Under Kentucky law, if one party to an executory contract repudiates his obligations, the other party may treat the contract as ended. See City of Memphis v. Ford Motor Co., 304 F.2d 845, 851 (6th Cir. 1962). If Behr told EPC that it would no longer treat EPC as a preferred subcontractor prior to the independent bids by EPC, then Behr committed the first breach and EPC is entitled to summary judgment. At present, however, the content of Behr's conversation with EPC remains a factual dispute. Behr denies having said that it would no longer use EPC as a subcontractor and points to work it gave to Behr after the alleged conversation took place. At trial, the Court will determine whether Behr breached the contract during its conversation with EPC in December of 1997.
EPC also argues that it never breached the site agreements because it did not "solicit" work from Ford or Nissan. EPC argues that it merely responded to requests for work. The Court rejects this alleged distinction. The plain language of both site agreements clearly prohibits EPC from doing Behr work without permission. It makes no difference whether Ford and Nissan sought a bid from EPC or EPC approached the companies first.
The Court concludes that the express contract claims are best resolved as scheduled by trial without jury. Each side has presented potentially winning arguments depending on the ultimate disposition of the facts. The Court believes that it would be much more appropriate to resolve this case after hearing all the facts first hand.
IV.
Behr also sues EPC under a theory of implied contract. EPC claims that an oral agreement would be barred by the statute of frauds. Under KRS 371.010(7), a contract must be in writing to be enforceable if the contract will not be performed within one year of its making. Behr argues that the statute of frauds does not apply if a contract could have been performed within a year. While this is generally true, if the parties did not anticipate performance to be completed within a year, the statute of frauds applies even if performance was possible during that time. See Williamson v. Stafford, 190 S.W.2d 859, 860 (Ky.App. 1945); Kentucky Utilities Co. v. Hurst Et. Ux., 269 S.W. 525 (Ky.App. 1925). In this case, the evidence indicates that the parties both expected the agreement to continue for more than a year. The signed contracts include an expiration date two and a half years from the date of the agreement. Moreover, the plants sought improvements on their automated paint systems infrequently, neither party could have anticipated competing for work at the site again in less than one year's time. Under these circumstances, the Court finds that the statute of frauds governs, and EPC is entitled to summary judgment on Behr's implied contract claims.
The dates given for improvements at each site are at least one year apart, sometimes longer.
Lastly, EPC argues that it is entitled to summary judgment on Behr's promissory estoppel claim. Behr pleads promissory estoppel in the alternative in case the Court finds procedural irregularities with its contract claim. Behr claims to have reasonably relied to its detriment on EPC's promise not to compete. In Tractor and Farm Supply, Inc. v. Ford New Holland, Inc., 898 F. Supp. 1198 (W.D.Ky. 1995), this court held that "estoppel cannot be the basis for a claim if it represents the same performance contemplated under a written contract." See also General Aviation, Inc. v. Cessna Aircraft Co., 915 F.2d 1038, 1042 (6th Cir. 1990). The alleged promise not to compete in this case is the same performance that Behr claims EPC agreed to in writing in the site agreements. Therefore, Behr cannot maintain its promissory estoppel claim.
Behr cites Hunt Enterprises, Inc. v. John Deer Industrial Equipment Co., 18 F. Supp.2d 697, 702 (W.D.Ky. 1997) to argue that it can maintain its detrimental reliance claim if it can prove reliance beyond its contractual duties. There are several problems with this argument. First, Behr had not alleged any reliance beyond that which is described in its written agreement with EPC. Second, Hunt occurred in the context of an alleged misrepresentation. Behr makes no such allegations here.
The Court will enter an order consistent with this Memorandum Opinion.
cc: Counsel of Record
ORDER
Having read Defendant's motion for summary judgment and Plaintiff's response, and being otherwise sufficiently advised,
IT IS HEREBY ORDERED that Defendant's motion for summary judgment is SUSTAINED as to Plaintiff's breach of implied contract and promissory estoppel claims and those claims are DISMISSED WITH PREJUDICE.
IT IS FURTHER ORDERED that Defendant's motion for summary judgment is DENIED as to its breach of contract claim and that claim will be resolved by trial to the Court.
cc: Counsel of Record