United States District Court, N.D. New York
January 28, 2004.
UTICA ALLOYS, INC., Plaintiff -vs- ALCOA INC., Defendant
The opinion of the court was delivered by: DAVID HURD, District Judge
MEMORANDUM-DECISION and ORDER
Plaintiff Utica Alloys, Inc. ("Utica Alloys, Inc." or "plaintiff")
filed suit against defendant Alcoa Inc. ("Alcoa Inc." or "defendant") in
New York State Supreme Court, alleging
claims of quantum meruit and unjust enrichment. After the case was
removed to federal court, defendant filed an answer together with a
counterclaim for breach of contract.
Defendant filed a motion for summary judgment pursuant to Fed.R. Civ.
P. 56 on its counterclaim as well as plaintiff's two claims. Plaintiff
opposed, and filed a cross-motion for summary judgment on defendant's
counterclaim. Oral argument was heard January 9, 2004, in Utica, New
York. Decision was reserved.
II. FACTUAL BACKGROUND
Alcoa Inc., through its business, generates a certain type of scrap
metal. Part of plaintiff's business is buying and processing this type of
scrap and selling it to its only user, General Electric, which utilizes
it in land-based power turbines. On September 8, 2000, a purchase
agreement was signed whereby Utica Alloys, Inc. agreed for nearly a
one-year period to buy all of this type of scrap generated by Alcoa Inc.
The purchase price was set, but the agreement contemplated it, along with
processing and service, would be reviewed semi-annually by the parties.
After the expiration of the initial agreement, a new purchase agreement
was signed in late July of 2001, and was to run until August of 2003. The
formula used for determining the monthly purchase price of the scrap,
devised by Anthony Marino ("Marino"), a vice president at Utica Alloys,
Inc., was indexed to the price of nickel, as reported on the London Metal
Exchange. The review clause again appeared in the agreement, as follows:
"The pricing, servicing and processing will be reviewed approximately
every six (6) months beginning in January 2002." (Docket No. 24, Ex. D.)
In November of 2001, General Electric reduced its production of
land-based power turbines, thereby deteriorating the market value of the
type of scrap, after processing, at
issue in the purchase agreement. Because, however, the purchase price
formula in the purchase agreement was based on the value of nickel rather
than the intrinsic or market value of the scrap, this market change was
not reflected. Plaintiff claims it was therefore forced to absorb the
losses caused by the change until January of 2002, when the first
opportunity arose to invoke the review clause.
On February 13, 2002, Marino met with George O'Leary ("O'Leary"), his
primary contact at Alcoa Inc., in response to the former's request for a
purchase price review. At the meeting, Marino informed O'Leary that Utica
Alloys, Inc. could not pay the purchase price as it was calculated in the
agreement, and presented O'Leary with several restructuring options.
Plaintiff claims that O'Leary informed Marino that he would try to work
something out with defendant's suppliers and that Utica Alloys, Inc.
should continue to process the scrap it received. Defendant denies
O'Leary told Marino that plaintiff should continue processing the scrap.
There is no question that Alcoa Inc. continued to ship the scrap, and
Utica Alloys, Inc. continued to process it.
The parties engaged in months of failed negotiations on the purchase
price of the scrap. Early in the negotiations, after scrap had begun to
build up at it's facility, plaintiff proposed to buy the scrap shipped to
it in February and March for $0.91 per pound. O'Leary allegedly responded
with a question regarding plaintiff's processing charges. Defendant
maintains, however, that throughout the negotiation process, O'Leary told
Marino of its position that the terms of the agreement were to apply
while the purchase price was under review.
Also during the negotiation process, in April of 2002, O'Leary made
Utica Alloys, Inc. the following offer: that Utica Alloys, Inc. pay Alcoa
Inc., at the agreement purchase
price, for the scrap shipped in February of 2002; that defendant would not
charge plaintiff for any scrap shipped after February of 2002; and that
defendant would pay the reasonable costs of processing the scrap. On
April 23, 2002, Marino rejected the offer, stating plaintiff's inability
to pay the purchase agreement price for the scrap shipped in February of
2002, as the company had already sustained significant losses. A few days
prior, however, Marino offered to allow defendant to retain ownership of
the scrap already shipped in exchange for the payment of the processing
charges incurred by plaintiff to that point.*fn1 On April 30, 2002,
plaintiff offered to buy all the scrap that had been shipped since
February of 2002 for $1.03 per pound, with the processing charges for
such scrap waived.
On May 6, 2002, Alcoa Inc. solicited bidders to purchase the scrap it
had shipped to Utica Alloys, Inc. from February through April of 2002.
O'Leary asked Marino if he could match the high bid.
On May 7, 2002, Marino sent O'Leary a proposed invoice for payment of
the charges incurred by plaintiff in processing the scrap defendant had
shipped. The proposed price for the processing, including inbound freight
charges, was $84,293.35. Defendant did not respond to this proposed
On May 11, 2002, Marino advised O'Leary that it would match the high
bid purchase price, but that Utica Alloys, Inc. expected to be paid $0.15
per pound for the scrap it had processed. O'Leary rejected payment of the
processing charges and demanded a
return of all the scrap Alcoa Inc. had shipped to Utica Alloys, Inc.
since February of 2002. Marino responded that if the processing charges
were not paid, the scrap would not be returned.
On May 15, 2002, Alcoa Inc. claims O'Leary re-extended both of its
prior offers-the April of 2002 three-part offer, and the offer for
plaintiff to match the high bid price with no offset for processing
charges. The offers were left open for one week, and O'Leary allegedly
advised Marino of defendant's belief that plaintiff had breached the
agreement and that refusal to accept one of the offers would result in a
collection action under the terms of the purchase agreement. Marino
reiterated that plaintiff expected to be paid for the processing charges,
and indicated a desire to continue the companies' relationship in the
event the market became favorable again. O'Leary acknowledged his past
overture that Alcoa Inc. would pay the processing charge as a part of the
April of 2002 offer, but plaintiff claims he nevertheless responded that
the contract was over and no more scrap would be shipped. Utica Alloys,
Inc. thereafter permitted Alcoa Inc. to retrieve the processed scrap.
On May 20, 2002, defendant sent two purchase agreements to another
buyer. In the first, it offered to sell the scrap that Utica Alloys, Inc.
had processed for $1.17 per pound. In the second, it offered to sell
unprocessed scrap for $1.19 per pound. This lawsuit followed.
As noted above, Alcoa Inc. has moved for summary judgment on both its
counterclaim and plaintiff's claims pursuant to Fed.R.Civ.P. 56. Utica
Alloys, Inc. has opposed defendant's motion as to its claims, contending
that factual issues preclude summary judgment, and cross-moved for
summary judgment on the counterclaim.
A. Summary Judgment Standard
Summary judgment must be granted when the pleadings, depositions,
answers to interrogatories, admissions and affidavits show that there is
no genuine issue as to any material fact, and that the moving party is
entitled to summary judgment as a matter of law. Fed.R.Civ.P. 56; Anderson
v. Liberty Lobby. Inc., 477 U.S. 242, 247 (1986); Richardson v. New York
State Dep't of Correctional Servs., 180 F.3d 426, 436 (2d Cir. 1999).
Facts, inferences therefrom, and ambiguities must be viewed in a light
most favorable to the nonmovant. Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 586 (1986); Richardson. 180 F.3d at 436; Project
Release v. Prevost. 722 F.2d 960, 968 (2d Cir. 1983). Once the moving
party has met the initial burden of demonstrating the absence of a genuine
issue of material fact, the nonmoving party "must set forth specific
facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56;
Liberty Lobby. Inc., 477 U.S. at 250; Celotex Corp. v. Catrett.
477 U.S. 317, 323 (1986); Matsushita Elec. Indus. Co., 475 U.S. at 587. At
that point the nonmoving party "must do more than simply show that there
is some metaphysical doubt as to the material facts." Matsushita Elec.
Indus. Co., 475 U.S. at 586. To withstand a summary judgment motion,
sufficient evidence must exist upon which a reasonable jury could return
a verdict for the nonmovant. Liberty Lobby. Inc., 477 U.S. at 248-49;
Matsushita Elec. Indus. Co., 475 U.S. at 587.
B. The Counterclaim Breach of Contract
In its counterclaim, Alcoa Inc. claims that Utica Alloys, Inc. breached
the purchase agreement by refusing to pay the purchase agreement price
for the scrap it shipped from February of 2002 to April 2002. The success
of this claim revolves around the interpretation of the review clause,
which as noted, states: "The pricing, servicing and processing will be
reviewed approximately every six (6) months beginning in January
2002." (Docket No. 24, Ex. D.)
Utica Alloys, Inc.'s argument can be summarized as follows: The clause
is ambiguous because it can be interpreted as either not granting or
granting to either party a right to terminate the purchase agreement in
the event the parties do not reach an agreement during the expressly
provided for price review. Because the clause is ambiguous, it is proper
to resort to extrinsic evidence to determine whether the parties intended
through the clause to grant such a termination right. The extrinsic
evidence establishes that such a right was, in fact, intended or, at the
very least, that a factual question remains. Because of the desire not to
penalize the party requesting a price review, the purchase agreement
price was suspended during negotiations, and, when such negotiations
failed, the termination of the agreement was effective as of date the
price review was initially undertaken at the end of January of 2002.
Alcoa Inc. claims the plain language of the review clause cannot be read
to grant a right of termination in the event negotiations failed.
The goal of contract interpretation is "to give effect to the intention
of the parties as expressed in the unequivocal language employed." Breed
v. Ins. Co. of N. Amer., 46 N.Y.2d 351, 355 (1978). "Where the language
of a contract is clear and unambiguous, it is to be interpreted by its
own language," S. Road Assocs., LLC v. Int'l Bus. Mach. Corp., ___
N.Y.S.2d ___, available at 2003 WL 23099057, at *2 (2d Dep't Dec. 29,
2003), giving the words used "their plan meaning," Krumme v. W. Point
Stevens, 238 F.3d 133, 139 (2d Cir. 2000). Extrinsic evidence outside
"`the four corners of the instrument'" may not be used to vary or alter
this meaning. British Int'l Ins. Co. Ltd. v. Seguros La Republica, S.A.,
342 F.3d 78, 82 (2d Cir. 2003) (quoting Rainbow v. Swisher, 72 N.Y.2d 106,
109 (1988)). Where,
however, contract language is ambiguous, extrinsic evidence can be
accepted to help determine the true intentions of the parties. Id.
(quoting Alexander & Alexander Servs., Inc. v. Certain Underwriters at
Lloyd's. 136 F.3d 82, 86 (2d Cir. 1998)). "Whether a contract is
ambiguous is a question of law for a court to determine as a threshold
matter" on a case by case basis. World Trade Ctr. Properties. LLC v.
Hartford Fire Ins. Co., 345 F.3d 154, 184 (2d Cir. 2003); W.W.W. Assocs.
v. Giacontieri. 77 N.Y.2d 157, 162 (2002).
A contract provision is unambiguous when it has a "definite and precise
meaning, unattended by danger of misconception in the purport of the
contract itself, and concerning which there is no [reasonable] basis for
difference of opinion." Krumme. 238 F.3d 133, 139 (2d Cir. 2000). A
contract is ambiguous where its terms "could suggest more than one
meaning when viewed objectively by a reasonably intelligent who has
examined the context of the entire integrated agreement and who is
cognizant of the customs, practices, usages and terminology as generally
understood in the particular trade or business." British Int'l. 342 F.3d
at 82 (internal quotations and citation omitted). However, just as
extrinsic evidence may not be used to create an ambiguity in a contract,
"[u]nambiguous contract language is not rendered ambiguous by competing
interpretations of it urged in litigation." Photopaint Technologies. LLC
v. Smartlens Corp., 335 F.3d 152, 160 (2d Cir. 2003).
As evidence that the review clause is ambiguous, Utica Alloys, Inc.
points to the deposition testimony of one of its own employees, Charles
Yarbrough ("Yarbrough"), who previously worked for other companies in the
scrap metal business. Notwithstanding that Yarbrough could be considered
biased because of his allegiance to plaintiff, his testimony is far less
than a definitive statement that the review clause could be read to grant
a termination right, much less a reasonable definitive statement. A large
portion of the quoted testimony
concerns his understanding of the purpose behind the clause fairness
for parties entering into purchase agreements the subject of which is
subject to an unpredictable market and his understanding that the
clause implies a duty on the part of both parties to negotiate in good
faith once a price review is requested, (Docket No. 23, pp. 11-12; Docket
No. 25, Ex. D.), neither of which is relevant or contested by Alcoa Inc.
The last, smaller portion of the quoted deposition testimony does relate
to whether the clause grants a right to termination in the event
negotiations fail, but Yarbrough himself notes that "it doesn't state
that," and that it is only implied, and at no point ever states that such
implication comes from his experience in dealing with other, similar
clauses in agreements with no separate termination clauses. Thus, a
colorable argument exists that his reading of the clause comes not from
his industry experience in dealing with contracts like the one at issue
here i.e., one with no separate termination clause but rather from
reading only this contract, and from a biased perspective at that.
In any event, the language of the clause itself does not lend itself to
differing reasonable interpretations. No terms of art are used that could
denote a right to termination. The words used can be interpreted only to
mean just what they say that "[t]he pricing, servicing and processing
will be reviewed approximately every six (6) months beginning in January
2002." (Docket No. 24, Ex. D.) Nothing in this language indicates,
implicitly much less explicitly, that a lack of consensus on such a
review results in the agreement ceasing to exist. Such an
interpretation, which would permit a party to welch on its obligations if
it simply did not get its way, so to speak, in the negotiations process,
would be unreasonable, and could perhaps render the remainder of the
terms of the contract superfluous.
Utica Alloys, Inc.'s only other substantive argument in this regard is
that interpreting the clause to not grant a termination right would
render it "without purpose." (Docket No. 23, p. 9.) Particularly, it
claims that such an interpretation would mean that "the requesting party
would be in the same position if the [review clause] was not contained in
the . . .[p]urchase [a]greement still able to request review and still
without remedy if the request is not resolved-still required to perform,
and accept performance required by" the agreement. Id. This argument is
rejected. As noted, defendant does not appear to argue that the review
clause does not impose a good faith negotiating duty on the parties when
a review is requested. It only claims that a right to termination if
those negotiations fail cannot be read into the clause. Therefore, even
though the review clause does not provide the parties guidance as to the
contingency of failed negotiations, it does serve the purpose of
permitting the negotiations themselves, and mandating a good faith effort
by both sides. In the absence of the review clause Utica Alloys, Inc.
would certainly have the ability but not the contractual right to
request review. Thus, interpreting the review clause as not granting to
the parties an implied right of termination does not render it without
If defendant had failed to negotiate in good faith, a claim neither
made by Utica Alloys, Inc. nor supported by the record, plaintiff may
have had the option to terminate the agreement. However, under the
language in the agreement, prepared and/or approved by a vice president
of Utica Alloys, Inc., it does not have the contractual right to
terminate the agreement merely because the good faith negotiations are
C. Alcoa Inc.'s Damages
There is no dispute that Utica Alloys, Inc. did not pay the purchase
agreement price, or any price for that matter, for the scrap shipped to
it by defendant from February of
2002 to April of 2002. There can also be no dispute that Alcoa Inc.
terminated the purchase agreement in May of 2002 because of this breach.
The question remaining on the counterclaim, therefore, is the proper
measure of damages. Defendant claims its measure of damages is the
difference between the purchase agreement price of the scrap and the
price for which it sold the processed scrap it retrieved from plaintiff.
This, however, would serve as a double penalty to Utica Alloys, Inc.
for processing the scrap. Absent the purchase agreement, Alcoa Inc. would
have sold the scrap at the unprocessed market price. Because of the
purchase agreement, it is entitled to the higher purchase agreement
price. The processed feature of the scrap, as Alcoa Inc. points out
numerous times, was not part of the agreement between the parties and
actually decreased its value because of the demand reduction in the
market for such scrap. However, Alcoa Inc. accepted return of the
processed scrap from Utica Alloys, Inc. when it elected to terminate the
purchase agreement in May 2002. It has also refused to pay plaintiff for
processing the scrap. Defendant cannot be permitted in one breath to
denounce processing as irrelevant to the contractual relationship, while
in another embrace the market change of processed scrap as the yardstick
for measuring its damages under the contract.
Therefore, the proper measure of damages is the difference between the
purchase price of the unprocessed scrap, as such is calculated under the
purchase agreement, and the market value of unprocessed scrap. The market
value of unprocessed scrap is not to be determined solely from the amount
for which Alcoa Inc. was able to sell the scrap in May of 2002. Rather,
because the purchase agreement called for monthly shipments and prices,
damages will have to be ascertained for three different time periods. The
following determinations will therefore need to be made, for each of the
months from February to April
of 2002, before the proper amount of total damages can be calculated: (1)
the amount, in pounds, of scrap shipped during each of the relevant
months; (2) the per pound purchase agreement price, calculated using the
formula in the agreement, for each of the relevant months; and (3) the per
pound fair market value of unprocessed scrap for each of the three
months. The damages will be calculated for each of the three months, and
will then be added together to determine defendant's total damages for
plaintiff's failure to pay for the scrap it was shipped. The parties will
be permitted to submit verified applications setting forth only the three
figures, as well as any facts/figures supporting the same, required for
D. Utica Alloys, Inc.'s Claims
Contrary to defendant's argument, the fact that the parties had a
contractual relationship from February of 2002 to May of 2002 does not
automatically mean that plaintiff's quantum meruit and unjust enrichment
claims fail. These two claims emanate from the charges Utica Alloys,
Inc. incurred in processing the shipped scrap, which, as Alcoa Inc. has
repeatedly pointed out, was an activity irrelevant to and outside the
scope of the purchase agreement. The purchase agreement contemplated only
the sale of unprocessed scrap from defendant to plaintiff. It did not
provide for what plaintiff was to do with the scrap once delivered. Thus,
plaintiff's two claims cannot be barred because of the existence of "`a
valid express agreement between the parties which explicitly covers the
same specific subject matter for which the implied agreement is sought.'"
See Lightfoot v. Union Carbide Corp., 110 F.3d 898, 905 (2d Cir. 1997)
(quoting Chadirjian v. Kanian, 506 N.Y.S.2d 880,
886 (2d Dep't 1986)); R.B. Ventures, Ltd, v. Shane, 112 F.3d 54, 60 (2d
Cir. 1997). Nevertheless, the two claims are both legally deficient.*fn2
1. Quantum meruit
In order to recover in quantum meruit for processing the scrap, Utica
Alloys, Inc. must demonstrate that it had a reasonable expectation of
being compensated. See Moors v. Hall. 532 N.Y.S.2d 412, 414 (2d Dep't
1988). Whether a plaintiff has satisfied this requirement is ordinarily a
question for a jury. Id. Here, however, the facts alleged by plaintiff as
serving the basis for satisfying the requirement are insufficient, as a
matter of law, to demonstrate a reasonable expectation of compensation.
Specifically, plaintiff points to the following alleged facts: (1) the
alleged statement made by O'Leary in February of 2002 that Utica Alloys,
Inc. should continue to process the scrap it is shipped during price
review negotiations; and (2) the statements about the payment of
processing charges during negotiations as part of the parties' efforts to
come to a consensus.
With respect to the first alleged fact, plaintiff argues that a jury
could find O'Leary's statement to be a request that it continue to
process the scrap. This is rejected. O'Leary's
statement, assuming he made it, was clearly just a signal that Alcoa
Inc. wished to resolve the purchase price dispute and continue the
contractual relationship. As both parties point out, under the purchase
agreement Alcoa Inc. was unconcerned with what Utica Alloys, Inc. did
with the scrap that was shipped. O'Leary therefore would have had no
motivation to make the statement other than to convey to plaintiff that
Alcoa Inc. intended to make the good faith effort required during the
negotiations process. It is important to note that the alleged statement
was made in February of 2002, early in the negotiations process.
Plaintiff did not yet have a large quantity of scrap stockpiled at its
facility. It had not yet processed a large (or, most likely, any) amount
of scrap such that it had to be then concerned about receiving
compensation therefor. At that point in the negotiations, the only issue
on the table was the purchase agreement price at which Utica Alloys,
Inc. was to buy the scrap. There is no evidence that extra-contractual
issues, such as processing charges, were being considered.
With respect to the second alleged fact, it is critical that the
parties were negotiating, making various offers and counteroffers, at the
time defendant made statements about the prospect of it paying
plaintiff's processing charges. Alcoa Inc. does acknowledge that it raised
the possibility of paying such charges, but only as a part of a larger
offer to resolve the price review dispute. Utica Alloys, Inc. cannot
derive a reasonable expectation of compensation from the characterization
of part of a negotiation offer as acceptable and satisfactory. The April
of 2002 offer, in which defendant's offer to pay the charges was
included, was unquestionably rejected by plaintiff. It would be
inappropriate to permit Utica Alloys, Inc. to manipulate negotiation
statements, which by their very nature are contingent, into forming a
reliable and reasonable basis for compensation. Such would thwart the
purpose of negotiation, and would discourage parties from the good
faith, back and forth, efforts that ordinarily resolve disputes outside
of the courtroom. Therefore, on the facts alleged, Utica Alloys, Inc. did
not, as a matter of law, have a reasonable expectation of compensation
for the processing of the scrap.
2. Unjust enrichment
To prevail on its unjust enrichment claim, Utica Alloys, Inc. must
prove, inter alia. that by processing the scrap, Alcoa Inc. was enriched
when it retrieved the scrap in May of 2002. See Golden Pac. Bancorp. 273
F.3d at 519 ("Under New York law, for a plaintiff to prevail on a claim
of unjust enrichment, he must establish: (1) that the defendant was
enriched"). Utica Alloys, Inc. argues that "processing adds value to the
[s]crap[,] [and] allows a purchaser to obtain a chemical analysis
thereof." (Docket No. 23, p. 24.)
There is no dispute that the market for the processed scrap was poor
from February to April of 2002. Thus, far from being enriched, Alcoa Inc.
actually suffered a loss by virtue of the processed feature of the scrap.
In other words, had plaintiff not processed the scrap, and instead
allowed defendant to retrieve it as it was shipped, Alcoa Inc. could have
sold it at a higher price. That defendant allegedly requested and then
received chemical analyses of the scrap speaks less to the fact that it
felt enriched by the processing, and more to an attempt to try to make as
marketable as possible scrap that it already knew was processed and would
garner a lower purchase price. Therefore, because Utica Alloys, Inc.
cannot prove that Alcoa Inc. was enriched in any way by the processing
efforts, the claim for unjust enrichment must fail.
The review clause in the purchase agreement entered into by and between
Utica Alloys, Inc. and Alcoa Inc. cannot be read as conferring an
implicit termination right, and is therefore unambiguous. Defendant is
therefore entitled to judgment on its counterclaim, and may receive as
damages for plaintiff's failure to pay for scrap shipped and received
under the purchase agreement the difference between the monthly purchase
agreement price for such scrap and the monthly fair market value of
unprocessed scrap. plaintiff's claims for quantum meruit and unjust
enrichment fail as a matter of law.
Accordingly, it is
1. Defendant's motion for summary judgment on plaintiff's claims is
GRANTED, and the complaint is DISMISSED;
2. Plaintiff's cross-motion for summary judgment on defendant's
counterclaim is DENIED; and
3. Defendant's motion for summary judgment on its counterclaim is
GRANTED on the issue of liability.
Alcoa Inc. shall submit a verified application as to the three damages
components for each month, as such components are set out herein. Said
application shall be filed and served on or before February 24, 2004.
Utica Alloys, Inc. may submit a verified opposition. Said opposition
shall be filed and served on or before March 23, 2004. Thereafter,
judgment will be entered dismissing the complaint and on Alcoa Inc.'s
IT IS SO ORDERED.