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January 28, 2004.

UTICA ALLOYS, INC., Plaintiff -vs- ALCOA INC., Defendant

The opinion of the court was delivered by: DAVID HURD, District Judge



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 Page 2 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.


  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 Page 3 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 Page 4 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 invoice.

  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 Page 5 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 ...

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