Opinion
Case No. 3:19-cv-146
04-21-2020
Johnson Electric North America, Inc., Plaintiff/Counter-Defendant, v. Honeywell International, Inc., Defendant/Counter-Plaintiff.
ENTRY AND ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS BY DEFENDANTS/COUNTER-PLAINTIFF HONEYWELL INTERNATIONAL, INC. ECF 16. THE MOTION IS DENIED WITH REGARD TO COUNT I AND IS GRANTED WITH REGARD TO COUNTS II AND III. PLAINTIFF/COUNTER-DEFENDANT JOHNSON ELECTRIC NORTH AMERICA, INC.'S MOTION TO FILE SUPPLEMENTAL COMPLAINT, ECF 29, IS GRANTED.
Defendant and Counter-Plaintiff Honeywell International, Inc. has filed a Motion to Dismiss. (ECF 16.) Plaintiff and Counter-Defendant Johnson Electric North America, Inc. has filed a Motion to File a Supplemental Complaint. (ECF 29.)
Three primary documents underlie the parties' dispute. The first is Strategic Supplier Agreement, (ECF 1-2, ex. A), which is also known as a Long Term Agreement, or LTA, which contains "Exhibit A - Products, Minimum Stocking Level, Pricing, Lead-times and Specifications." (ECF 1-2, PageID 35.) The second is "Conditional Award Agreement (With Pre-existing LTA)." (ECF 1-3, ex. B.) The third is "Amendment to Exhibit A - Products, Minimum Stocking Level, Pricing, Lead-times and Specifications." ECF 1-4. Ex. C.
Count I of Johnson Electric's complaint asserts Breach of Contract, Count II asserts a claim for Promissory Estoppel and Count III a claim for Unjust Enrichment. (ECF 1).
I. Background
Plaintiff and Counter-Defendant Johnson Electric North America, Inc. and Defendant and Counter-Plaintiff Honeywell International Inc. entered into a Strategic Supplier Agreement, which they also call a Long Term Agreement or LTA, effective April 1, 2016. (See Exh. A to Pl.'s Compl., ECF 1-2, PageID 15). Under the terms of the Strategic Supplier Agreement, Johnson Electric promised to supply Honeywell with products and related services to the extent ordered by Honeywell through Honeywell Purchase Orders. Strategic Supplier Agreement, §§1.0 and 3.1. Because the products are for incorporation into Honeywell products (see, e.g., Supplier Agreement, Attachment A) for sale to Honeywell customers, the Supplier Agreement provides Honeywell's customers certain rights as well, such as to observe testing of Johnson Electric Products (Supplier Agreement, §8.4), participate in audits of Johnson Electric (Id. at §10.0), warranties (Id. at §16.1), indemnification (Id. at §18.1), and confidentiality (Id. at §19.6). The Supplier Agreement also provides that Honeywell has the right to control product design and manufacturing, including product specifications, design changes, and quality. See, e.g., Supplier Agreement, §§4.0, 5.0, and 8.0.
The Supplier Agreement did not obligate Honeywell to buy any quantity of products or grant Johnson Electric exclusivity as a supplier: "This Agreement does not specify a quantity of Products to be purchased by Honeywell, does not obligate Honeywell to purchase any Products, and is not an exclusive purchasing agreement." (Supplier Agreement, §1.0.) Honeywell had the right to terminate the Supplier Agreement for convenience upon 60 days' written notice and to terminate any Honeywell Purchase Order without liability upon 30 days' written notice. Supplier Agreement, §2.3.
The parties agreed to initial pricing set forth in Exhibit A to the Strategic Supplier Agreement. Strategic Supplier Agreement, §11.1; ECF 1-2, PageID 35. But, Johnson Electric also promised Honeywell targeted price reductions:
Supplier shall utilize best efforts and work closely with Honeywell to achieve targeted cost reductions. Any cost savings identified by Supplier and Honeywell during the period of this Agreement will be implemented as shown below:Supplier Agreement, §9.1.
• Engineering, process changes, logistic benefits, packaging changes or other areas of improvement that reduce total acquisition costs to Honeywell will result in a price reduction to Honeywell equal to the net cost reduction.
• Improvement areas will be mutually agreed upon by Honeywell and Supplier prior to implementation.
• Price changes will be effective when the cost reduction is effective at Supplier.
A target cost reduction of 5% annually is a mutual goal and Supplier will propose projects and savings opportunities of at least 5% annually; provided, however, the foregoing is not a commitment to price reductions until initiatives and action plans are approved.
Johnson Electric further promised Honeywell productivity-based price reductions:
Supplier commits to the productivity-based price reduction required by Section 9.1 and will update Exhibit A accordingly throughout the Term. Upon the agreement of the parties to reduced pricing for the Products, such pricing shall immediately apply to all Products in consignment or under a stocking arrangement with Supplier, all
undelivered Products, all open and unfilled Purchase Orders, all future Purchase Orders and all unconsumed inventory owned by Honeywell.Id. at §11.1.
Johnson Electric promised Honeywell the "lowest prices":
Supplier warrants that the prices charged for the Products delivered under this Agreement are the lowest prices charged by Supplier for similar goods where volume levels are substantially similar to or less than Honeywell's volume. If Supplier charges a lower price for similar goods, Supplier must notify Honeywell and apply that price to all Products ordered under this Agreement by immediately paying Honeywell the price difference and applying the lower price to all Purchase Orders. If at any time before full performance of this Agreement, Honeywell notifies Supplier in writing that Honeywell has received a written offer from another supplier for similar goods (similar in terms of form, fit, function, quality and/or technical design) at a price lower than the price set forth in this Purchase Order, Supplier must immediately meet the lower price for any undelivered Products. If Supplier fails to meet the lower price, in addition to other rights or remedies, Honeywell, at its option, may immediately terminate the balance of this Agreement without liability. As directed by Honeywell, Supplier will provide the Products at the prices applicable under this Agreement, subject to terms and conditions of this Agreement, to other Honeywell divisions and affiliates and any third-party Honeywell sub-supplier or designee.Id. at §11.2.
Crucially, the Supplier Agreement is an integrated agreement, stipulating that, to be valid and enforceable, any amendment must be in writing, signed by both Honeywell and Johnson Electric, and must specifically reference the Supplier Agreement:
This Agreement, together with any previously executed agreement(s) pertaining to confidentiality and/or non-disclosure, constitutes the entire agreement of Honeywell and Supplier regarding the subject matter hereof, superseding all prior agreements or understandings, written or oral and it may not be modified, extended, canceled or rescinded except in a writing signed
by the parties which expressly references this Agreement. This Agreement does not affect the rights and obligations which have accrued under any prior agreements with respect to the performance or nonperformance thereof. Supplier shall not assign this Agreement or any interest therein nor subcontract any work under any Purchase Order. No representation, warranty, course of dealing, or trade usage not contained or expressly set forth herein will be binding on with party.Strategic Supplier Agreement, §24.1.
The Strategic Supplier Agreement is governed by New York law (Supplier Agreement, §24.3) and expressly requires Johnson Electric to maintain the fact, existence and terms of the agreement as confidential, an obligation that survives any termination. Id. at §§2.6 and 19.4.
The Strategic Supplier Agreement specified that Honeywell would order the products via purchase orders, and that all purchase orders were subject to the terms of the Strategic Supplier Agreement. (Id. at ¶ 10.) The products offered for sale and an associated pricing table was to be identified in the Strategic Supplier Agreement's Exhibit A. (Id. at ¶ 7.) One category of identified products in Exhibit A to the Strategic Supplier Agreement is the Tri-Blade line of products. (Id. at ¶ 8.) Exhibit A to the Strategic Supplier Agreement allegedly provided what the pricing would be for the various Tri-Blade products, from the effective date of the Strategic Supplier Agreement through December 2019. (Id. at ¶ 9.) The Strategic Supplier Agreement also provides that "[a] mutual agreement on the price changes, if any, will be provided as an amendment" to the Strategic Supplier Agreement. (Id. at ¶ 11.)."
Almost a year later, in March 2017, Honeywell held an auction on its new Entergy program, also known as the Alpha 4 program, by opening a bidding process for the Alpha 4 product market share. (Id. at ¶ 13.) As part of the bidding process, Honeywell required certain conditions, one of which was a $400,000 Quick Savings. (Id.) That is, the supplier to whom Honeywell awarded the Alpha 4 project would be required to pay a $400,000 Quick Savings to Honeywell. (Id.) Upon review of the bids, Honeywell awarded the design and production of the Alpha 4 program to Johnson Electric. (Id. at ¶ 14.)
On March 29, 2017, the parties executed a "Conditional Award Agreement with PreExisting LTA." (Id.; see also Exh. B to Pl.'s Compl., ECF 1-3, PageID 49.) Pursuant to the terms of the Conditional Award Agreement, Honeywell agreed to purchase the Alpha 4 products from Johnson Electric. (Pl.'s Compl. at ¶ 15, ECF 1.) In exchange, Johnson Electric agreed, in part, to pay Honeywell the $400,000 Quick Savings. (Id.) The Conditional Award Agreement also specified that the parties "agree to work together to amend the exhibits of the LTA and to incorporate the agreed upon terms" of the Conditional Award Agreement. (Id. at ¶ 15.) Three days after execution, Johnson Electric submitted the $400,000 Quick Savings to Honeywell as a credit memo against current unpaid invoices. (Id. at ¶ 18.)
The Conditional Award Agreement governs the award of an "NPI Project," and allegedly states that the Strategic Supplier Agreement controls: "In the event of conflict between the terms and conditions of this agreement and the existing Long Term Agreement [LTA] dated April 01, 2016 between the parties, the Long Term Agreement will supersede." ECF 1-3, PageID 49.
Under the Conditional Award Agreement, no amount of purchases is required, and purchases are subject to Honeywell's customer's award of business and also to delay or cancellation entirely:
Honeywell makes this conditional award to Supplier subject to the establishment of Product Pricing per program, and Supplier's agreement with the terms set forth herein. Honeywell may not have received customer award for some or all of the Goods in this conditional award. The Goods and/or the Program may also be subject to delay or cancellation. This conditional award is subject
to customer's award of the Program for the Goods to Honeywell and Supplier's compliance with all the provisions set forth below. Failure of the customer to award the Program and/or Goods to Honeywell or any delay, cancellation or change to forecasted volume of the Program and/or Goods by customer shall be without lability to Honeywell.Conditional Award Agreement, §1.
The Conditional Award Agreement did not promise any quantity of business or exclusivity:
Supplier will sell Honeywell the products for the programs listed on Attachment 1 (the "Products") together with related services, if any. This Agreement does not specify a quantity of Products to be purchased by Honeywell, does not obligate Honeywell to purchase any Products, and is not an exclusive purchasing agreement.Id. at §2.
There are no volume guarantees to Johnson Electric and even forecasts are based on Honeywell's customer's forecasts:
The stated Program volumes are based upon Honeywell's customer's forecasted requirements and are subject to change. They are not a volume guarantee. No price changes will be accepted due to program volume changes or cancellations.Id. at §7. While the Conditional Award Agreement does not use the words "Strategic Supplier Agreement," it references a "Long Term Agreement dated April 1, 2016," which is the date of the Strategic Supplier Agreement. See id. at ¶6.
Besides agreeing to provide Honeywell with a $400,000 Credit Memo to be applied to open invoices, Johnson Electric agreed to develop and deliver "Goods" meeting quality and manufacturing requirements and approvals with commercial production parts ready to ship by June 30, 2018. Conditional Agreement, §9 and section after the signature blocks; ECF 1-3, PageID 51 and 52-53. For its part, Honeywell agreed to pay Johnson Electric for tooling costs in the amount of $725,000. ECF 1-3, PageID 52-53.
The Conditional Award Agreement is subject to the terms and conditions set forth in "Attachment 2" to it, the Honeywell Standard Purchase Order Terms and Conditions:
[Johnson Electric] accepts Honeywell Standard Purchase Order Terms and Conditions for Goods and Services set forth in Attachment 2 (the "General Terms") and further represents and warrants that there is nothing that will restrict or prevent Supplier in any way from fulfilling all its obligations, duties and services under this Agreement, including without limitation any exclusivity arrangement or non-compete. With respect to the interpretation of the Terms for the purposes of this Agreement, this Agreement shall be Interpreted to be a "Purchase Order" as referenced in the General Terms. Supplier agrees to accept future revisions to the General Terms as may be Issued by Honeywell from time to time. The April 01-2016 Long Term Agreement supersedes.Conditional Award Agreement, §8; see also Att. 2, beginning at ECF 1-3, PageID 53. This includes, like the Strategic Supplier Agreement, requirements regarding "lowest prices" (Conditional Award Agreement, Att. 2, §12), inspection (Id. at §15), warranties (Id. at §16), design changes (Id. at §18) and indemnification. (Id. at §22).
As with the Strategic Supplier Agreement, the parties agreed that no changes to the Conditional Award Agreement would be binding on Honeywell unless in writing and "signed by an authorized Procurement representative of Honeywell":
No change to or modification of this Purchase Order will be binding upon Honeywell unless in writing, specifically identifying that it amends this Purchase Order, and signed by an authorized procurement representative of Honeywell. If Supplier becomes aware of any ambiguities, Issues, or discrepancies between this Purchase Order and any specification, design, or other technical requirement applicable to this Purchase Order, Supplier will immediately submit the matter to Honeywell for resolution. No course of dealing, prior dealings, usage of trade or course of
performance will be used to modify, supplement or explain any terms used in, or incorporated by reference into, this Purchase Order.Conditional Award Agreement, Att. 2, §1; ECF 1-3, PageID 54. New York law, likewise, governs (Id. at Att. 2, §32.1; ECF 1-3, PageID 66) and Johnson Electric, likewise, agreed to maintain the existence and terms of the Conditional Award Agreement as confidential, an obligation that allegedly survives any termination or expiration. Id. at Att. 2, §§26.2 and 40; ECF 1-3, PageID 63 and 68-69.
When awarded participation in the Alpha 4 program, Johnson Electric dedicated resources to designing a product to meet Honeywell's requirements. (Id. at ¶ 19.) Johnson Electric alleges it spent significant engineering resources, management efforts and direct investment because of Honeywell's request to develop an integrated meter base under the Alpha 4 program. (Id.) Over the course of the next six months, Johnson Electric regularly met with Honeywell's technical team to develop, design and test the Alpha 4 product. (Id.)
Historically, Honeywell had contracted with two parties, whereby one supplier designed the plastic round meter base and the other supplier designed the relay. (Id. at ¶ 20) Both Honeywell and Johnson Electric were operating under the understanding that the product would be an integrated meter base, which would include one single-design meter base, including the disconnect relay and CT coils. (Id.) The integrated meter base would allow the two parties to collaborate and incorporate the base as part of the relay, creating a common meter platform. (Id.) This would allow Honeywell to source with one single supplier, Johnson Electric. (Id.)
In October 2017, however, after months of design and development, Honeywell informed Johnson Electric that it was revising the scope of the Alpha 4 program. (Id. at ¶ 21.) Honeywell no longer wanted an integrated meter base, but rather, decided to separately source the relay and meter base, and thus move forward with two suppliers rather than one. (Id.) The parties discussed how to proceed under their contractual relationship with respect to the Alpha 4 program. (Id. at ¶ 22.) Honeywell stated that it would no longer honor an earlier commitment to source 100% of the Alpha 4 program to Johnson Electric as the single supplier of the product. (Id.) Rather, Honeywell stated that it would award Johnson Electric a minimum of 80% market share of the Alpha 4 program. (Id.)
In addition, Honeywell demanded a price reduction on the Tri-Blade products if it was going to award Johnson Electric any share of the Alpha 4 program. (Id. at ¶¶ 9, 23.)
Johnson Electric alleges on March 16, 2018, it acceded to Honeywell's demands for price concessions on Tri-Blade products in order to achieve 80% of the Alpha 4 supply. Honeywell forwarded to Johnson Electric "Amendment to Exhibit A - Products, Minimum Stocking Level, Pricing, Lead-times and Specifications" in the form of an e-mail and attachment. (Id. at ¶ 24; see also Exh. C to Pl.'s Compl., ECF 1-4, PageID 71; Honeywell 3/16/18 e-mail.) The attachment reads:
Honeywell describes the "Amendment to Exhibit A - Products, Minimum Stocking Level, Pricing, Lead-times and Specifications" as a "Draft Amendment," Johnson Electric alleges that it is an enforceable Amendment to Exhibit A to the Supplier Agreement.
Amendment to Exhibit A - Products, Minimum Stocking Level, Pricing, Lead-times and Specifications
Rev: 16, March 2018
Per the discussions between Johnson Electric and Honeywell between February 8, 2018 and March 8, 2018, pricing on the current Tri-Blade Product and the new Alpha4-Residential 2S Disconnect
Chassis (previously known as CMP 2S) will change based upon the following agreement:ECF 1-4, PageID 71. The e-mail and its attachment confirmed the parties' agreement regarding new pricing for the Tri-Blade products, as well as new terms for the Alpha 4 program. (ECF 1-3; see also Honeywell 3/2/18 e-mail.)
• Johnson Electric will continue to support the design and development of a switch I chassis solution for the Entergy program
• Quality of the product is not sacrificed and is maintained.
• Minimum 80% share on the Entergy Program. Johnson Electric understands that Honeywell will need to qualify two sources, 100% cannot be guaranteed. Honeywell may order 100% from Johnson Electric but cannot guarantee the 100%.
• LTA for Tri-Blade will be extended thru 2023 and include the transition from Tri-Blade to Alpha4 product. Pricing will need to be added on LTA for years 2020 to 2023.
Based on Johnson Electric's acceptance of the proposal, the parties allegedly agreed Johnson Electric would continue to support the design and development of the relay for the Alpha 4 program. (Id. at ¶ 25.) In exchange, Honeywell allegedly agreed to award Johnson Electric at least an 80% market share of the Alpha 4 program. (Id.) Johnson Electric further alleges that, as part of the amendment, Honeywell would receive pricing reductions for the Tri-Blade program, from April 1, 2018 through December 2019. (Doc. No, 1-4; see also Johnson Electric 3/19/18 e-mail, attached as Exh. C.)
On March 28, 2018, Honeywell submitted to Johnson Electric revised purchase orders for the Tri-Blade product incorporating the agreed-upon updated pricing. (Id. at ¶ 28, see also Exh. E, exemplary Purchase Orders.)
On the face of the updated purchase orders, Honeywell added a notation that reads, "Johnson Electric and Honeywell have come to a new pricing agreement which affects the three Tri-Blade relays. New Prices are effective April 1." (See Exh. E.) On April 13, 2018, Johnson Electric reiterated in a letter to Honeywell that it accepted all terms of Honeywell's March 16, 2018 proposed amendment, an assertion allegedly intended to modify Exhibit A of the Strategic Supplier Agreement. (Id. at ¶ 26; see also Johnson Electric 4/13/18 letter, attached as Exh. D.)
Johnson Electric sent Order Confirmation forms to Honeywell allegedly intending to confirm the revised purchase orders, and the reduced pricing and relying on Honeywell's actions and the terms of the Amendment to Exhibit A - Products, Minimum Stocking Level, Pricing, Lead-times and Specifications." (Id. at ¶ 29.)
Johnson Electric alleges that its April 13 acceptance letter, and the terms of the Amendment to Exhibit A, show that Johnson Electric's price concession for the Tri-Blade products would not have existed but for Honeywell's promise to provide Johnson Electric at least an 80% share of the Alpha 4 program—a program not contemplated by the Strategic Supplier Agreement. (See Exh. D; see also Exh. C to Pl.'s Compl.) Because of the Amendment to Exhibit A, Honeywell has realized over $200,000 in savings on the Tri-Blade product price reductions. (Pl.'s Compl. at ¶ 32.)
The following year, in March 2019, Honeywell conducted an auction for the award of the Alpha 4 program. (Id. at ¶ 33.) Johnson Electric participated in Honeywell's auction. (Id. at ¶ 34.) In its quote for the program, Johnson Electric reiterated the provisions of Amendment to Exhibit A - Products, Minimum Stocking Level, Pricing, Lead-times and Specifications, stating: (1) Honeywell previously awarded the Alpha 4 business to Johnson Electric based on an auction held in March 2017; (2) Johnson Electric paid the $400,000 Quick Savings on April 1, 2017 pursuant to the Conditional Award Agreement for Alpha 4; and (3) Honeywell was already receiving discounted prices on the Johnson Electric Tri-Blade relays since April 1, 2018, based on the understanding that Johnson Electric would receive at least 80% market share of the Alpha 4 business, as set forth in the Amendment to Exhibit A - Products, Minimum Stocking Level, Pricing, Lead-times and Specifications. (Id.)
In response, Honeywell indicated that it would only grant Johnson Electric 20-30% of Honeywell's requirements on the Alpha 4 program. (Id. at ¶ 35.) Subsequently, in a meeting held on May 9, 2019, Honeywell stated that it had absolutely no intention of purchasing any of Johnson Electric's products, products allegedly developed specifically for Honeywell's program at Honeywell's direction, and would award Johnson Electric 0% of the Alpha 4 program. (Id. at ¶ 36.)
On May 14, 2019, Johnson Electric filed suit against Honeywell for breach of the Amendment to Exhibit A - Products, Minimum Stocking Level, Pricing, Lead-times and Specifications. (Pl.'s Compl., Doc. No 1.) Johnson Electric asserts three claims in the Complaint, Count I—Breach of Contract, Count II—Promissory Estoppel and Count III—Unjust Enrichment.
Honeywell countersued, alleging that Johnson Electric is in violation of confidentiality provisions in their contract and that Honeywell's customer for the Alpha 4 project was dissatisfied with the part Johnson Electric was developing. Honeywell further alleges that Johnson Electric is retaliating against Honeywell for its decision to seek other sources for its Alpha 4 part by withholding production of Tri-Blade project, parts Honeywell had contracted with it to produce, parts for which Johnson Electric is alleged to be the only qualified producer. ECF 18.
II. Standard
To survive a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a complaint must contain sufficient factual matter, accepted as true, to "'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also, Ass'n of Cleveland Fire Fighters v. City of Cleveland, Ohio, 502 F.3d 545, 546 (6th Cir. 2007). The "tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions" and "threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice" to withstand the requirements of Federal Rules of Civil Procedure 8 and 12(b)(6). Ashcroft, 129 S. Ct. at 1949.
When a court is presented with a Rule 12(b)(6) motion, it may consider the complaint and any exhibits attached thereto, public records, items appearing in the record of the case and exhibits attached to defendant's motion to dismiss so long as they are referred to in the complaint and are central to the claims contained therein." Bassett v. Nat'l Collegiate Athletic Ass'n, 528 F.3d 426, 430 (6th Cir. 2008). "[W]here materials are central to the claims asserted, a defendant may introduce these materials if the plaintiff fails to do so" without converting a motion to dismiss for failure to state a claim into a motion for summary judgment. Dials v. Watts Bros. Moving & Storage Sys., Inc., No. C2-03-513, 2003 U.S. Dist. LEXIS 21413, at *7 (S.D. Ohio Nov. 24, 2003).
"When a court is presented with a Rule 12(b)(6) motion, it may consider the Complaint and any exhibits attached thereto, public records, items appearing in the record of the case and exhibits attached to defendant's motion to dismiss so long as they are referred to in the Complaint and are central to the claims contained therein." JM Adjustments Servs., LLC v. J.P. Morgan Chase Bank, N.A., No. 16-10630, 2016 U.S. Dist. LEXIS 94242, at *8 (E.D. Mich. July 20, 2016) (quoting Weiner v. Klais & Co., 108 F.3d 86, 89 (6th Cir. 1997)). A motion to dismiss "is granted when no material issue of fact exists and the party making the motion is entitled to judgment as a matter of law." Paskvan v. Cleveland Civil Serv. Comm'n, 946 F.2d 1233, 1235 (6th Cir. 1991).
III. Analysis
A. Breach of Contract
Honeywell argues that Johnson Electric's breach of contract claim should be dismissed because the contractual terms allegedly violated in the Amendment to Exhibit A are not binding. Honeywell reasons that the Strategic Supplier Agreement expressly provides that any amendment to it must be in writing, signed by both Honeywell and Johnson Electric, and must specifically reference the Strategic Supplier Agreement. Supplier Agreement, §24.1. On its face, the Amendment to Exhibit A is not executed by both of the parties.
New York courts do enforce contract terms that dictate how an agreement may be amended. United Mobile Techs., LLC v. Pegaso PCS, 509 F. App'x 48, 50-51 (2d Cir. 2013) ("Under New York contract law, it is well established that even if the parties have agreed upon all the terms of a proposed contract, if they do not intend to be bound by an agreement until it is in writing and signed, then there is no contract until the written instrument is executed."). In New York, if the parties conclude a contract requiring that any modification thereof be in writing and signed by the parties, in the absence of such a writing, any alleged oral modification to the time of the essence provision, in light of the contractual proscription against oral modification contained in the parties' written agreements, is barred by the statute of frauds. No. 1 Funding Ctr., Inc. v. H & G Operating Corp., 48 A.D.3d 908, 910, 853 N.Y.S.2d 178, 181 (2008).
Honeywell cites the Court to Parker Hannifin Corp. v. North Sound Props., 2013 U.S. Dist. LEXIS 67026, at *23-25 (S.D.N.Y. May 8, 2013), which cites to No 1Funding Center, but Parker Hannifin overstates the holding of No 1 Funding Center.
Johnson Electric asserts it alleged that the parties entered into a written agreement: Honeywell "forwarded to Johnson Electric a proposed amendment to the LTA" and "Johnson Electric confirmed this agreement on April 13, 2018." (Pl.'s Compl. at ¶¶ 24, 26, ECF 1, PageID 6.)
Johnson Electric's pleading continues, "Honeywell submitted to Johnson Electric revised purchase orders for the Tri-Blade product," and Johnson Electric "confirmed the purchase orders, and the reduced pricing, by sending Order Confirmation forms to Honeywell," and the "agreement ... stated that Johnson Electric's pricing concession for the Tri-Blade products was a result of Honeywell's promise to give Johnson Electric 80% share of the Alpha 4 program," thereby allegedly performing pursuant to the Amendment to Exhibit A. (Id. at ¶¶ 29-30.)
Johnson Electric then alleges "[i]n direct contradiction of [the Conditional Award Agreement] and the [Amendment to Exhibit A], Honeywell subsequently indicated it would only grant Johnson Electric 20-30% of Honeywell's requirements on the Alpha 4 program . . . and on May 9, 2019, Honeywell stated that it . . . would award Johnson Electric 0% of the Alpha 4 program." (Id. at ¶¶ 35-36).
Finally, Johnson Electric points out that it alleged that, pursuant to the Amendment to Exhibit A, "Honeywell has realized over $200,000 in savings on the Tri-Blade product price reductions" and that Honeywell "would award Johnson Electric 0% of the Alpha 4 program," demonstrating damages to Johnson Electric. (Id. at ¶¶ 32, 36.)
Johnson Electric relies upon New York's Electronic Signatures and Records Act ("ESRA"). See 9 NYCRR § 540. The New York State Technology Law, former article 1, "Electronic Signatures and Records Act," was enacted by the New York legislature in 2002. In the accompanying statement of legislative intent, the Legislature stated, "[This act] is intended to support and encourage electronic commerce and electronic government by allowing people to use electronic signatures and electronic records in lieu of handwritten signatures and paper documents" (L 2002, ch 314, § 1).
Section 302(3) of the statute states that an "'[e]lectronic signature' shall mean an electronic sound, symbol, or process, attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the record." Section 304(2) of the statute states that "an electronic signature may be used by a person in lieu of a signature affixed by hand [and][t]he use of an electronic signature shall have the same validity and effect as the use of a signature affixed by hand."
According to the ESRA, "[t]he use of an electronic signature as defined in ESRA shall have the same validity and effect as the use of a signature affixed by hand" and "[i]n accordance with ESRA, an electronic signature is an electronic sound, symbol, or process, attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the record. 9 NYCRR § 540.4. An electronic signature is considered to be 'attached to or logically associated with an electronic record' if the electronic signature is linked to the record during transmission and storage." Id.
Moreover, under Section 540.5, "[a]n electronic record used by a person shall have the same force and effect as those records not produced by electronic means." "An 'Electronic record' shall mean information, evidencing any act, transaction, occurrence, event, or other activity, produced or stored by electronic means and capable of being accurately reproduced in forms perceptible by human sensory capabilities." Id.
Thus, in New York, after a series of negotiations consistent with an agreement, followed by an email message that ended with the simple expression, "Thanks Brenda Greene," rather than an email where the sender's email software has been programmed to automatically generate the name of the email sender, along with other identifying information, every time an email message is sent, indicates that the author purposefully added her name to this particular email message, and forms a contract. Forcelli v. Gelco Corp., 109 A.D.3d 244, 250-51, 972 N.Y.S.2d 570, 575 (2013); cf. DeVita v. Macy's E., Inc., 36 A.D.3d 751, 828 N.Y.S.2d 531). See also Newmark & Co. Real Estate Inc. v. 2615 E. 17th St. Realty LLC, 80 A.D.3d at 477, 914 N.Y.S.2d 162 ["e-mail sent by a party, under which the sending party's name is typed, can constitute a writing for purposes of the statute of frauds"]; see also Naldi v. Grunberg, 80 A.D.3d 1, 6-13, 908 N.Y.S.2d 639).
Additionally, in New York e-mail messages can constitute "signed writings," satisfying both the statute of frauds and the underlying agreement's requirement that any modification be signed by all parties. Stevens v. Publicis, S.A., 50 A.D.3d 253; 854 N.Y.S.2d 690 (N.Y. Sup. Ct. 2008); see also Ion Audio, LLC v. Bed, Bath & Beyond, Inc., No. 15-CV-8292 (slip op), 2019 WL 1494398, at *3 (S.D.N.Y. Apr. 2, 2019) (holding email exchanges between the parties modified the terms of the parties' agreement, despite a modification provision in the parties' contract requiring that any modifications must be in writing and signed by all parties).
The Court notes that Honeywell allegedly drafted the Amendment to Exhibit A. (See Exh. A.) Additionally, "a memorandum expressing the contract d[oes] not have to be contained in one document but could consist of separate signed and unsigned writings that, read together, clearly refer to the same transaction and contain all of the essential terms of a binding contract, as long as the unsigned writings were created by the party to be charged." Solartech Renewables, LLC v. Vitti, 156 A.D.3d 995, 998 (N.Y. Sup. Ct. 2017). Honeywell is the party to be charged in Johnson Electric's complaint. Johnson Electric allegedly "agree[d] to accept future revisions to the General Terms as may be Issued by Honeywell from time to time." Conditional Award Agreement, §8; see also ECF 1-3, PageID 53. For this reason, Honeywell's motion fails as regards Johnson Electric's contract claim.
Alternatively, Johnson Electric properly pleaded that the parties waived the contract amendment requirements based on partial performance of the Amendment to Exhibit A. While New York law upholds and enforces contracts that contain no-oral-modification clauses, see GOL § 15-301; U.C.C. § 2-209, partial performance of the alleged agreement waives the requirement if the performance is "unequivocally referable to the oral modification." Rose v. SPA Realty Assocs., 366 N.E.3d 1279, 1283 (N.Y. Ct. App. 1977); see also Trafigura Beheer B.V. (Amsterdam) v. S. Caribbean Trading Ltd., 801 N.Y.S.2d 243 (N.Y. Sup. Ct. 2004) (citing F. Garofalo Elec. Co., Inc. v. New York Univ., 270 A.D.2d 76, 80 (2000)). "Where there is partial performance of the oral modification sought to be enforced, the likelihood that false claims would go undetected is . . . diminished . . . the court may consider not only past oral exchanges, but also the conduct of the parties. But only if the partial performance be unequivocally referable to the oral modification is the requirement of a writing . . . avoided" Id.; see also Obsessive Compulsive Cosmetics, Inc. v. Sephora USA, Inc., 43 N.Y.S.3d 768 (N.Y. Sup. Ct. 2016)).
Johnson Electric has alleged post-modification conduct by the parties that would prove partial performance in accordance with the agreed-upon terms of the Amendment to Exhibit A sufficient, if proven, for a finder of fact to conclude Honeywell waived the no-oral modification clause under the Strategic Supplier Agreement. After Johnson Electric accepted the Amendment to Exhibit A, Honeywell allegedly began issuing purchase orders pursuant to the figures outlined in the Amendment to Exhibit A, and those purchase orders reference the Amendment to Exhibit A. (See Pl.'s Compl., ¶ 28; see also Exh. E.) Honeywell allegedly benefitted from the Amendment to Exhibit A by receiving hundreds of thousands of dollars in price reductions, arguably a substantial amount, as well as from the continued benefit of design and development support for Alpha 4. (Id. at ¶¶ 31-32.) Also, alleged e-mail communications between the parties support Johnson Electric's contention that the parties mutually accepted the terms of and operated pursuant to the Amendment to Exhibit A. Nowhere in the Strategic Supplier Agreement or Conditional Award Agreement were the specific Tri-Blade price deductions and 80% market share promise delineated in the same manner as specified in the Amendment to Exhibit A. Only the Amendment to Exhibit A sets forth the per unit price concessions allegedly used by Honeywell in its purchase orders, purchase orders allegedly accepted by Johnson Electric via purchase confirmations. (Id. at ¶¶ 28-30.) Johnson Electric alleged that it stipulated that the price deductions were provided in exchange for the 80% floor market share promise for Alpha 4, a term not referenced in either the Strategic Supplier Agreement or the Conditional Award Agreement. (See id. at ¶ 30; see also Exh. D.) Thus, Honeywell's motion will be denied with regard to Johnson Electric's partial performance theory.
B. Promissory Estoppel
Johnson Electric also claims that Honeywell is liable for not providing Johnson Electric with 80% of the market share for the Alpha 4 program under a theory of promissory estoppel. Johnson Electric alleges that "Honeywell promised, through its representations, conduct, acts and omissions, that it would provide Johnson Electric with a minimum 80% market share of the Alpha 4 program." Complaint, ¶ 44; ECF 1-1, PageID 9. Honeywell contends that the parties' written contracts govern.
A claim for promissory estoppel is a quasi-contract claim. Kwon v. Yun, 606 F. Supp .2d 344, 368 (S.D.N.Y.2009). A plaintiff may bring quasi-contract claims in addition to a breach of contract claim "where there is a dispute over the existence, scope or enforceability on the putative contract." Reilly v. NatWest Markets Group, Inc., 181 F.3d 253, 263 (2d Cir. 1999); see also Harrison v. Toptani Law Offices, 2012 WL 694755, at *2 (S.D.N.Y. Mar. 2, 2012).
Johnson Electric pleaded that Honeywell promised to award Johnson Electric an 80% market share of the Alpha 4 program in a written amendment to their contract. (Id. at ¶ 25.) Johnson Electric accepted the promise allegedly offered by Honeywell on the 80% value share condition. (Id. at ¶¶ 27-30.) Allegedly, by issuing purchase orders reflecting the figures outlined in the Amendment to Exhibit A, Honeywell communicated through its actions that the Amendment to Exhibit A was enforceable, and that the purchase orders completed by Honeywell upon modification are referable only to the figures in the Amendment to Exhibit A. (Id. at ¶ 28.) By accepting the price concessions and saving hundreds of thousands of dollars, Honeywell allegedly further indicated to Johnson Electric that it acquiesced in the agreement and it was valid. (Id. at ¶¶ 29-32.).
In New York, it is impermissible to seek damages in an action sounding in quasi contract where the suing party has fully performed on a valid written agreement, the existence of which is undisputed, and the scope of which clearly covers the dispute between the parties Clark-Fitzpatrick, Inc. v. Long Island R. Co., 70 N.Y.2d 382, 389, 516 N.E.2d 190, 193 (1987). A quasi-contract only applies in the absence of an express agreement, and is not really a contract at all but, rather, is a legal obligation imposed in order to prevent a party's unjust enrichment. 22A N.Y. Jur. 2d Contracts § 518. However, quasi-contractual claims are not precluded by pleading of a cause of action for breach of a verbal agreement, since inconsistent causes of action can be pleaded in the alternative. Id.
Johnson Electric, however, alleges that the parties are governed by the Strategic Supplier Agreement (Complaint, ¶ 6; Doc. No. 1, PageID 3) and the Conditional Award Agreement (Id. at ¶ 14; Doc. No. 1, PageID 4). Accordingly, Honeywell's Motion to Dismiss will be granted with regard to Johnson Electric's promissory estoppel claim.
C. Unjust Enrichment
Honeywell asserts that Johnson Electric's claim for unjust enrichment, like its claim for promissory estoppel, is precluded as a matter of law by valid and enforceable contracts between the parties and because Johnson Electric has not pleaded any unjust conduct given the express terms of those agreements.
'"To state a cause of action to recover damages for unjust enrichment, a plaintiff must allege that (1) the other party was enriched, (2) at [the plaintiff's] expense and (3) that it is against equity and good conscience to permit [the other party] to retain what is sought to be recovered."' Levin v. Kitsis, 82 A.D.3d 1051, 1053 (N.Y. Ct. App. 2011) (quoting AHA Sales, Inc. v. Creative Bath Prod., Inc., 58 A.D.3d 6, 19 (2008)).
Unjust enrichment is also a quasi-contract claim. See Fieger v. Pitney Bowes Credit Corp., 251 F.3d 386, 394 (2d Cir. 2001) ("[U]nder New York law, a quantum meruit claim is a claim in quasi-contract"); Newman & Schwartz v. Asplundh Tree Exnert Co., 102 F.3d 660, 664 (2d Cir.1996) ("[Q]uantum meruit and unjust enrichment were quite properly subsumed by the district court into a single count"). A plaintiff may only bring quasi-contract claims in addition to a breach of contract claim "where there is a dispute over the existence, scope, or enforceability on the putative contract." Reilly v. NatWest Markets Group, Inc., 181 F.3d 253, 263 (2d Cir. 1999).
The existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter. Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d 382, 516 N.E.2d 190, 193, 521 N.Y.S.2d 653 (N.Y. 1987); see also Arbitron, Inc. v. Kiefl, 2010 U.S. Dist. LEXIS 83597, 2010 WL 3239414, at *7 (S.D.N.Y. Aug. 13, 2010) ("Unjust enrichment is not available where there is a valid contract between the parties covering the same subject matter."); AngioDynamics, Inc. v. Biolitec, Inc., 606 F. Supp. 2d 300, 305 (N.D.N.Y. 2009) ("Because the dispute is covered by [a] contract, a claim in unjust enrichment cannot proceed.").
Johnson Electric alleges Honeywell accepted price concessions amounting to hundreds of thousands of dollars in gains to Honeywell, pursuant to the figures specified in the Amendment to Exhibit A. (Pl.'s Compl. at ¶¶ 28-32.) Johnson Electric allegedly agreed to these price concessions by confirming Honeywell's purchase orders under a reasonable belief that it was giving the deductions in order to receive at least 80% market share of the Alpha 4 program. (Id.) Johnson Electric pleaded that Honeywell should not be able to retain these benefits in light of the fact that Johnson Electric is now receiving zero interest in a program that it was promised 80% market. (Id. at ¶¶ 30, 36.) Thus, Johnson Electric alleges the existence of a contract governing their dispute. If the Amendment to Exhibit A amended the parties' contract, Johnson Electric has alleged a claim; if the Amendment to Exhibit A does not amend the parties' contract, there is still an alleged written contract governing the parties' relationship.
In New York, it is impermissible to seek damages in an action sounding in quasi contract where the suing party has fully performed on a valid written agreement, the existence of which is undisputed, and the scope of which clearly covers the dispute between the parties Clark-Fitzpatrick, Inc. v. Long Island R. Co., 70 N.Y.2d 382, 389, 516 N.E.2d 190, 193 (1987). A quasi-contract only applies in the absence of an express agreement, and is not really a contract at all but, rather, is a legal obligation imposed in order to prevent a party's unjust enrichment. 22A N.Y. Jur. 2d Contracts § 518. Accordingly, a party cannot recover damages for unjust enrichment based on conduct or events governed by a written agreement. Id. Accordingly, the Court will dismiss this claim.
D. Motion to Amend Complaint
Johnson Electric has filed a Motion to File a Supplemental Complaint. (ECF 29.) Honeywell opposes Johnson Electric's motion, urging that it would be futile. Because Johnson Electric's breach of contract claim survives Honeywell's motion to dismiss, a supplemental complaint would not necessarily be futile with regard to that claim. Thus, Johnson Electric's Motion to File a Supplemental Complaint (ECF 29) will be granted.
IV. Conclusion
Because Plaintiff/Counter-Defendant Johnson Electric North America, Inc. alleged facts sufficient for a finder of fact to determine that Amendment to Exhibit A amended the parties' contract either by virtue of electronically signed written documents or by virtue of partial performance, Defendant/Counter-Plaintiff Honeywell's Motion to Dismiss (ECF 16) is DENIED with regard to Count I. Because in New York quasi-contractual claims may not be maintained in the face of a governing written contract Defendant/Counter-Plaintiff Honeywell's Motion to Dismiss (ECF 16) is GRANTED with regard to Counts II and III. Plaintiff/Counter-Defendant Johnson Electric North America, Inc. has filed a Motion to File a Supplemental Complaint. (ECF 29.)
DONE and ORDERED in Dayton, Ohio, this Tuesday, April 21, 2020.
s/Thomas M. Rose
THOMAS M. ROSE
UNITED STATES DISTRICT JUDGE