Opinion
Case No.: SACV 18-00912-CJC(PLAx)
2020-03-03
SIC METALS, INC., Plaintiff, v. HYUNDAI STEEL COMPANY, and Does 1-20, Defendants.
Ginam Lee, Jay Chang Wha Hong, Legacy Pro Law PC, Jeffrey T. Kim, LP L Lawyers, Los Angeles, CA, for Plaintiff. Joseph R. O'Connor, Marc F. Feinstein, O'Melveny and Myers LLP, Los Angeles, CA, for Defendant Hyundai Steel Company.
Ginam Lee, Jay Chang Wha Hong, Legacy Pro Law PC, Jeffrey T. Kim, LP L Lawyers, Los Angeles, CA, for Plaintiff.
Joseph R. O'Connor, Marc F. Feinstein, O'Melveny and Myers LLP, Los Angeles, CA, for Defendant Hyundai Steel Company.
ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT [DKT. 84]
CORMAC J. CARNEY, UNITED STATES DISTRICT JUDGE
I. INTRODUCTION
On September 20, 2017, Plaintiff SIC Metals, Inc. ("SIC") brought this action against Defendants Hyundai Steel Company ("Hyundai"), R-Techo Co., Ltd. ("R-Techo"), and Ernst & Young Han Young ("EY"). (Dkt. 1-1.) Before the Court is Hyundai's motion for summary judgment on SIC Metal's contractual interference claim. (Dkt. 84 [hereinafter "MSJ"].) For the following reasons, that motion is GRANTED.
Two other Plaintiffs, Hweesang Chang and Byung Hwan Jung, also asserted claims in this action. Chang and Jung voluntarily dismissed their claims against Hyundai on January 9, 2020, leaving SIC as the only remaining Plaintiff. (Dkt. 77.)
The Court dismissed Plaintiffs' claims against EY with prejudice on November 18, 2018. (Dkt. 45.) R-Techo was dismissed from this action on February 19, 2020 after the parties filed a joint stipulation to dismiss it with prejudice. (Dkt. 94.)
II. BACKGROUND
This case concerns the supply chain along which steel is shipped from the United States to Korea. For the purposes of the instant motion, there are three relevant parties, each of which operates as a link along this chain. The first party is Plaintiff SIC, a California corporation that sells steel and other scrap metal to U.S.-based vendors. The second, nonparty Prime Metals U.S.A., Inc. ("Prime"), is another California corporation and one of the vendors that purchased steel from SIC. (Dkt. 46 [Fifth Amended Complaint, hereinafter "FAC"] ¶ 17.) The final party is Defendant Hyundai, a "multi-billion-dollar company" based in Korea that purchases large quantities of steel for its operations. (Id. ¶ 13.)
SIC's contractual interference claim against Hyundai stems from two contracts. One is the Scrap Metal Purchase and Sales Agreement ("SMPSA"), which was executed by Prime and JLK (a company to whom SIC is the successor-in-interest) in July 2015. (Dkt. 17-7 [SMPSA] at 1.) The SMPSA contains a "minimum purchase" provision which obligates Prime to purchase at least 30 percent of its total steel from JLK for a five-year period. (Id. at 2.) Joshua Kim, the President and sole owner of both JLK and SIC, was motivated to enter into the SMPSA with Prime based on his understanding that Prime supplied considerable amounts of scrap metal to Hyundai. (Dkt. 88-2 [Declaration of Joshua Kim, hereinafter "Kim Decl."] ¶ 6.) He knew that Hyundai was a large, established company and believed that it would continue to buy from Prime, which would in turn lead to a great deal of business for SIC. (Id. ) Kim envisioned a supply chain-like relationship by which SIC would sell steel to Prime and Prime would sell that steel to Hyundai. (Id. )
The other contract at issue is the "Supply Contract," which was executed by Prime and Hyundai on October 1, 2015. (Dkt. 84-7 Ex. 1 [hereinafter "Supply Contract"].) That agreement provides that Prime would provide Hyundai with 20,000–30,000 metric tons of steel per month during the "initial supply period" of October 1, 2015 to September 30, 2016. (Id. at 1.) That initial supply period was subject to automatic renewal at the end of the initial 12-month period unless either party terminated the agreement. (Id. ) The Supply Contract does not include specific shipment or delivery terms. Instead, those terms were contained in purchase contracts that the parties negotiated and entered into each time Hyundai ordered steel from Prime. (Dkt. 84-1 [Hyundai's Statement of Uncontroverted Facts, hereinafter "Hyundai Facts"] ¶¶ 4–5.) Those purchase contracts included price, quantity, and shipment terms. (Id. ¶ 6.) For example, each purchase contract contained a deadline by which the requested amount of steel needed to be placed on a boat bound for Hyundai in Korea. (Dkt. 84-7 Ex. 2 [hereinafter "Purchase Orders"].) Those deadlines were typically about two months out from the date of the purchase contract. (Id. )
The timeliness of steel deliveries is crucial to Hyundai's steel processing operations. (Hyundai Facts ¶ 20.) When certain orders do not arrive on time, Hyundai is forced to purchase additional steel from different suppliers, often at a higher rate. (Id. ) Accordingly, the Supply Contract provides that, "Seller [Prime] acknowledges ... that time is of the essence for this Contract and shall meet the delivery date as agreed by the parties." (Supply Contract at 2.) Prime was aware that timely shipments and deliveries were required to ensure that Hyundai's operations ran smoothly. (Dkt. 84-2 Exs. 2–3 [Deposition of Min Ho An, hereinafter "An Dep."] at 311:12–312:10.)
The SIC-Prime-Hyundai supply chain that these two contracts established was operational for approximately eighteen months. As the contracts envisioned, Prime purchased steel from SIC pursuant to the SMPSA, and then supplied that steel to Hyundai pursuant to the Supply Contract. However, soon after Hyundai started ordering steel from Prime, it began experiencing problems with Prime's shipments. Specifically, during October and November of 2015, Prime and Hyundai entered into three purchase contracts under which Hyundai ordered a total of 45,000 metric tons of streel from Prime. (Dkt. 84-7 [Declaration of Jin Oh, hereinafter "Oh Decl."] ¶ 6.) Prime failed to deliver any of the steel under these three agreements on time. (Id. ) The shipments were either not loaded to Korea-bound boats on time or were never loaded at all. (Id. ) As a result, Hyundai temporarily stopped entering into new purchase contracts with Prime. (Id. ¶ 7.)
Business soon resumed, however. Between March 2016 and March 2017, Hyundai and Prime entered into thirty-four more purchase contracts. (Dkt. 84-4 [Declaration of Yeeho Park, hereafter "Park Decl."] ¶ 2.) During this period, Prime again frequently failed to comply with the terms of various purchase contracts by shipping steel either late or not at all. (Dkt. 84-3 [Declaration of Joong Bae Kim, hereafter "J.B. Kim Decl."] ¶ 4.) Indeed, of the thirty-four purchase contracts between Hyundai and Prime between March 2016 and March 2017, only four deliveries arrived entirely on time. (Park Decl. ¶ 4.) As a result of these nonconformities, Hyundai reduced the size of its monthly orders from Prime to less than 20,000 metric tons per month. (J.B. Kim Decl. ¶ 4.) Hyundai stopped purchasing steel from Prime altogether in March 2017. (Dkt. 88-2 [Declaration of Min Ho An, hereinafter "An Decl."] ¶ 49.) However, Hyundai purchased a series of notes from Prime in a "loan sales agreement" that was unrelated to the Supply Contract in January 2017. (Id. ¶¶ 89–91.)
Hyundai's orders made up eighty percent of Prime's revenue, so when Hyundai stopped doing business with Prime, Prime was left in a precarious position. (An Dep. at 73:2-24.) And as Hyundai's orders from Prime slowed, so too did Prime's orders from SIC. (Kim Decl. ¶ 14.) Because Prime had no one to sell steel to, it stopped purchasing from SIC. (An Dep. at 313:21-24.) Even though the SMPSA obligated Prime to purchase steel from SIC for a five-year period, Prime's final purchase from SIC occurred in March 2017, less than two years after the SMPSA was executed. (An Decl. ¶ 49.) Not long after that final order, Prime filed for chapter 7 bankruptcy. (Dkt. 87-3 [Prime's Voluntary Petition for Non-individuals Filing for Bankruptcy].) SIC was reliant on Prime's business and went out of business shortly after Prime's chapter 7 filing. (Kim Decl. ¶ 15.)
SIC filed suit against several Defendants in Orange County Superior Court on September 20, 2017. (Dkt. 1-1 [Complaint].) Defendants removed the case, and after several rounds of briefing on motions to dismiss, SIC was left with one claim against Hyundai for intentional interference with contractual relations and one claim against R-Techo, Prime's sole shareholder, for breach of contract. (FAC.) The parties filed a joint stipulation to dismiss R-Techo on February 18, 2020. (Dkt. 93.) SIC's remaining contractual interference claim alleges that Hyundai tortiously interfered with SIC's contractual relationship with Prime when it stopped ordering steel from Prime. (FAC ¶¶ 89–100.) Following discovery, Hyundai filed the instant motion for summary judgment, arguing that no genuine dispute of material fact remains as to that claim.
III. LEGAL STANDARD
The Court may grant summary judgment on "each claim or defense—or the part of each claim or defense—on which summary judgment is sought." Fed. R. Civ. P. 56(a). Summary judgment is proper where the pleadings, the discovery and disclosure materials on file, and any affidavits show that "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Id. ; see also Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The party seeking summary judgment bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. , 477 U.S. at 325, 106 S.Ct. 2548. A factual issue is "genuine" when there is sufficient evidence such that a reasonable trier of fact could resolve the issue in the nonmovant's favor. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A fact is "material" when its resolution might affect the outcome of the suit under the governing law, and is determined by looking to the substantive law. Id. "Factual disputes that are irrelevant or unnecessary will not be counted." Id. at 249, 106 S.Ct. 2505.
Where the movant will bear the burden of proof on an issue at trial, the movant "must affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party." Soremekun v. Thrifty Payless, Inc. , 509 F.3d 978, 984 (9th Cir. 2007). In contrast, where the nonmovant will have the burden of proof on an issue at trial, the moving party may discharge its burden of production by either (1) negating an essential element of the opposing party's claim or defense, Adickes v. S.H. Kress & Co. , 398 U.S. 144, 158–60, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970), or (2) showing that there is an absence of evidence to support the nonmoving party's case, Celotex Corp. , 477 U.S. at 325, 106 S.Ct. 2548. Once this burden is met, the party resisting the motion must set forth, by affidavit, or as otherwise provided under Rule 56, "specific facts showing that there is a genuine issue for trial." Anderson , 477 U.S. at 256, 106 S.Ct. 2505. A party opposing summary judgment must support its assertion that a material fact is genuinely disputed by (i) citing to materials in the record, (ii) showing the moving party's materials are inadequate to establish an absence of genuine dispute, or (iii) showing that the moving party lacks admissible evidence to support its factual position. Fed. R. Civ. P. 56(c)(1)(A)–(B). The opposing party may also object to the material cited by the movant on the basis that it "cannot be presented in a form that would be admissible in evidence." Fed. R. Civ. P. 56(c)(2). But the opposing party must show more than the "mere existence of a scintilla of evidence"; rather, "there must be evidence on which the jury could reasonably find for the [opposing party]." Anderson , 477 U.S. at 252, 106 S.Ct. 2505.
In considering a motion for summary judgment, the court must examine all the evidence in the light most favorable to the nonmoving party, and draw all justifiable inferences in its favor. Id. ; United States v. Diebold, Inc. , 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962) ; T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n , 809 F.2d 626, 630–31 (9th Cir. 1987). The court does not make credibility determinations, nor does it weigh conflicting evidence. Eastman Kodak Co. v. Image Tech. Servs., Inc. , 504 U.S. 451, 456, 112 S.Ct. 2072, 119 L.Ed.2d 265 (1992). But conclusory and speculative testimony in affidavits and moving papers is insufficient to raise triable issues of fact and defeat summary judgment. Thornhill Publ'g Co. v. GTE Corp. , 594 F.2d 730, 738 (9th Cir. 1979). The evidence the parties present must be admissible. Fed. R. Civ. P. 56(c).
IV. ANALYSIS
A. The Tort of Intentional Contractual Interference
SIC's lone claim against Hyundai is for intentional interference with contractual relations. To prevail on this claim, SIC must establish, "(1) a valid contract between [it] and a third party; (2) defendant's knowledge of this contract; (3) defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage." Quelimane Co. v. Stewart Title Guar. Co. , 19 Cal. 4th 26, 55, 77 Cal.Rptr.2d 709, 960 P.2d 513 (1998) (internal quotations omitted). Unlike the related tort of interference with a prospective economic advantage, "it is not necessary that the defendant's conduct be wrongful apart from the interference with the contract itself." Id. The California Supreme Court has stated that a plaintiff may satisfy the intent requirement by showing that the defendant had a specific intent to interfere with a contract or that "the defendant knew that the interference was certain or substantially certain to occur as a result of its action." Korea Supply Co. v. Lockheed Martin Corp. , 29 Cal. 4th 1134, 1154, 131 Cal.Rptr.2d 29, 63 P.3d 937 (2003).
SIC claims that Hyundai tortuously interfered with the SMPSA—its long-term contract with Prime—when it stopped purchasing steel from Prime. According to SIC, this stoppage directly led to Prime going out of business, and in so doing, breaching its contractual obligations to SIC. Hyundai does not dispute that it knew about Prime's contractual relationship with SIC or that its acts were a substantial factor in causing Prime's breach of the SMPSA. Rather, Hyundai contends that it cannot be held liable for interference with the SMPSA because there is no genuine dispute over whether it was justified in cutting ties with Prime. The Court agrees.
B. Hyundai's Justification Defense
Although "[t]he tort of interference with contract does not have a defined ‘wrongfulness’ requirement, [ ] California courts have limited the application of the tort by allowing the affirmative defenses of ‘justification’ and ‘privilege.’ " Cabanas v. Gloodt Assocs. , 942 F. Supp. 1295, 1306 (E.D. Cal. 1996). Thus, if a defendant's "conduct was lawful and undertaken to enforce its rights," it cannot be held liable for intentional interference with a contract even if it knew that such conduct might interrupt a third party's contract. See Webber v. Inland Empire Invs. , 74 Cal. App. 4th 884, 905, 88 Cal.Rptr.2d 594 (1999) ; see also Pankow Const. Co. v. Advance Mortg. Corp. , 618 F.2d 611, 616 (9th Cir. 1980) (holding that under California law, "if two parties have separate contracts with a third, each may resort to any legitimate means at his disposal to secure performance of his contract even though the necessary result will be to cause a breach of the other contract" (quoting Imperial Ice Co. v. Rossier , 18 Cal. 2d 33, 37, 112 P.2d 631 (1941) ). The California Supreme Court has embraced this defense by explaining:
If the [defendant] is not acting criminally nor with fraud or violence or other means wrongful in themselves but [instead] is endeavoring to advance some interest of his own, the fact that he is aware that he will cause interference with the plaintiff's contract may be regarded as such a minor and incidental consequence and so far removed from the defendant's objective that as against the plaintiff the interference may be found to be not improper.
Quelimane Co. , 19 Cal. 4th at 56, 77 Cal.Rptr.2d 709, 960 P.2d 513 (quoting Restatement 2d of Torts § 766 ).
The undisputed facts before the Court show that Hyundai's decision to stop purchasing steel from Prime was completely justified and undertaken to enforce its own contractual rights under the Supply Contract. As a result, it cannot be held liable on SIC's intentional interference claim. The materials submitted by the parties confirm that, on many occasions, Prime failed to make steel shipments that complied with the purchase contracts they entered into with Hyundai. These purchase contracts set clear deadlines for when Prime's steel needed to be placed on Korea-bound ships. (See, e.g. , Park Decl. Ex. 1.) Prime's former CEO, Ik-Dong Kim, testified that there were occasions on which purchase order "deadline[s] [were] violated" and that "the reason why [Hyundai] doesn't purchase goods with Prime is because [those] term[s] were violated." (Dkt. 84-2 Ex. 1 [Deposition of Ik-Dong Kim, hereinafter "Dong Kim Dep."] 73:11-20.) Kim admitted that Prime missed deadlines on numerous occasions, which caused him to go to Hyundai and "beg for more opportunity" to try again. (Id. at 73:18-24.) He explained that "in the beginning, Hyundai Steel accommodated" the late shipments and "kept giving [Prime] orders," but eventually, "since this often occurred, Hyundai gradually cut down on its orders." (Id. at 82:6-12.) Min Ho An, who worked as Prime's secretary, confirmed that Prime's shipments to Hyundai were "multiple times delayed," that Prime occasionally shipped empty containers, and that "when [Prime's] financial situation was not good, there were some [ ] orders that could not be fulfilled as agreed." (An Dep. at 136:5–139:5, 141:16-23, 293:11-15, 310:3-7.) Though An offers various explanations for the late shipments, including fluctuating prices, he does not dispute that on many occasions, Prime did not comply with the terms of the purchase orders. (Id. )
These admissions from Prime's side of the relationship are consistent with the allegations made by Hyundai's employees regarding Prime's breaches. (See, e.g. , Oh Decl. ¶¶ 6–7 [explaining that none of the steel ordered in the first three purchase contracts arrived on time and that Hyundai eventually stopped ordering steel from Prime because "Prime had not fully performed its prior purchase contracts with Hyundai since the steel deliveries were either late or did not arrive at all"]; Kim Decl. ¶ 3 ["The entire time I was responsible for supervising Hyundai's contracting with Prime, Prime had outstanding deliveries of steel that had either not met the time for delivery stated in the purchase contracts or had not arrived at all."]; Park Decl. ¶ 4 ["Hyundai's business records show that Prime's deliveries were recurrently shipped after the deadlines stated on Prime's purchase contracts, if they were shipped at all."].) SIC does not seriously dispute many of these allegations, especially those regarding the first three contracts. (Dkt. 89 [Plaintiff's Statement of Genuine Issues of Material Fact] ¶ 11.)
SIC has failed to raise a genuine issue of material fact on the issue of whether Hyundai was justified in ending their relationship with Prime. It primarily relies on the declaration of Min Ho An, which states during long stretches of time, "Prime made all shipments under the Purchase Contracts," and that on certain occasions, Hyundai excused late shipments. (An Decl. ¶¶ 39, 47.) It further alleges—without citation to any admissible evidence—that the real reason that Hyundai stopped ordering steel from Prime was an internal power struggle at Hyundai. (Id. ¶ 43.) This declaration is insufficient to raise a disputed issue of fact on whether Prime breached the Supply Contract. See FTC v. Publ'g Clearing House, Inc. , 104 F.3d 1168, 1171 (9th Cir. 1997), as amended (Apr. 11, 1997) ("A conclusory, self-serving affidavit, lacking detailed facts and any supporting evidence, is insufficient to create a genuine issue of material fact."). An's declaration asserts only that "Prime made all shipments under the Purchase Contracts." (An Decl. ¶ 39.) Crucially, he gives no assurances that those shipments were timely. And An admitted at his deposition that Prime failed to comply with purchase contract deadlines "multiple times." (An Dep. 141:16-23, 293:11-15, 310:3-7.) Similarly, even if Hyundai excused Prime's compliance with some shipment deadlines, it remains undisputed that on other occasions, they did not consent to such modifications. (Dong Kim Dep. at 73:18-24.)
Once Prime breached the terms of the Supply Contract by failing to comply with various deadlines, Hyundai was entitled to enforce its own contractual rights and terminate the relationship with Prime under both California and Korean law. See Plotnik v. Meihaus , 208 Cal. App. 4th 1590, 1602, 146 Cal.Rptr.3d 585 (2012) ("[I]n contract law a material breach excuses further performance by the innocent party."). And because Hyundai was acting to enforce its own contractual rights when it terminated its relationship with Prime, it cannot be held liable to SIC for tortiously interfering with the SMPSA. See Pankow , 618 F.2d at 616 ("If two parties have separate contracts with a third, each may resort to any legitimate means at his disposal to secure performance of his contract even though the necessary result will be to cause a breach of the other contract."). The fact that Hyundai's actions frustrated Prime's ability to uphold its separate obligations to SIC is an "incidental consequence and so far removed from [Hyundai's] objective that ... the interference" was not improper. See Quelimane Co. , 19 Cal. 4th at 56, 77 Cal.Rptr.2d 709, 960 P.2d 513. Courts have routinely dismissed contractual interference claims under similar circumstances in which a defendant legitimately enforces its own rights, and in so doing, indirectly disrupts a plaintiff's contractual relationship. See Weststeyn Dairy 2 v. Eades Commodities Co. , 280 F. Supp. 2d 1044, 1089 (E.D. Cal. 2003) (granting summary judgment on plaintiff's contractual interference claim based on the defense of economic privilege or justification when the defendant lender acted within its contractual rights under a security agreement although it knew that such action would harm plaintiff's contracts); Dollar Tree Stores Inc. v. Toyama Partners, LLC , 2010 WL 1688583, at *4 (N.D. Cal. Apr. 26, 2010) (dismissing contractual interference claim when it was undisputed that defendant "was acting with a legitimate business purpose and was justified in discontinuing the loan disbursements" although such discontinuation caused the third-party to breach a contract it had with plaintiff); Carstens Chevrolet, Inc. v. Gen. Motors, LLC , 2017 WL 2654903, at *4 (E.D. Cal. June 20, 2017) (dismissing contractual interference claim because the defendant "exercised legitimate means to secure performance of" its own contact with a third-party).
Because both California and Korea permit a nonbreaching party to stop performing when a contract is breached, the Court deems it unnecessary to undertake a complete conflict of laws analysis. (See Dkt. 84-8 [Declaration of Jong K. Lee] at 11 [establishing that under Korean law, when one party breaches a "time is of the essence" clause, the contract is deemed canceled and the other party us under no obligation to continue performing].)
This is not a typical contractual interference case in which one party engages in improper conduct in order to gain a business advantage over a competitor. Cf. Korea Supply Co. , 29 Cal. 4th at 1134, 131 Cal.Rptr.2d 29, 63 P.3d 937 (contractual interference claim premised on allegations that defendant company "offered bribes and sexual favors to key Korean officials" in order to gain an advantage over plaintiff, their competitor). Hyundai and SIC are not competitors at all, and there is no allegation that Hyundai ended its relationship with Prime with the intent of harming SIC. The downstream harm to SIC was purely incidental to Hyundai legitimately enforcing its own contractual rights. Furthermore, none of Hyundai's conduct appears to have been improper under the circumstances. See Quelimane Co. , 19 Cal. 4th at 56, 77 Cal.Rptr.2d 709, 960 P.2d 513. By terminating its relationship with Prime, Hyundai reacted how any reasonable business would when faced with an unreliable contract partner. It would be patently unfair to force Hyundai to continue to do business with a company that was continually in breach of a contract just because it knew that cutting off that relationship might harm a third party.
On the facts present here, no reasonable fact finder could conclude that Hyundai was unjustified in ending its relationship with Prime. It is undisputed that many of Prime's shipments were not loaded on time, that the Supply Contract expressly provided that time was of the essence, and that timely deliveries were crucial to Hyundai's business. Because Hyundai acted legitimately to enforce its own contractual rights, SIC's contractual interference claim fails as a matter of law. See Pankow , 618 F.2d at 616.
V. CONCLUSION
For the foregoing reasons, Hyundai's motion for summary judgment is GRANTED.