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SUN CHEMICAL CORP. v. EXCELSIOR PACKAGING GROUP

January 10, 2005.

SUN CHEMICAL CORP., Plaintiff,
v.
EXCELSIOR PACKAGING GROUP, INC. and EXCELSIOR PACKAGING WEST, LLC, Defendants.



The opinion of the court was delivered by: HAROLD BAER, JR., District Judge

OPINION & ORDER

Sun Chemical Corp. ("Sun"), an ink supply company, entered into a requirements contract with the related entities of Excelsior Packaging Group, Inc. and Excelsior Packaging West, LLC (collectively, "Excelsior"). When Excelsior failed to make payments for quantities of ink it purchased, Sun filed suit for breach of contract, conversion/replevin, and unjust enrichment and sought damages, pre-judgment interest, attorneys' fees, costs, and replevin of an ink processing machine in Excelsior's Yonkers facility. Present before the Court is Sun's motion for summary judgment pursuant to Federal Rule of Civil Procedure ("Fed.R.Civ.P.") 56. Following oral argument on the motion on January 7, 2005, I granted Sun's motion with respect to liability and scheduled an inquest for February 8, 2005. I write here to briefly set forth the pertinent facts and the basis for my ruling.

I. BACKGROUND

  A. The Agreement*fn1

  On May 30, 2003, Sun and Excelsior entered into a contract, the In-Plant Supply Agreement ("the Agreement"), under which Excelsior agreed to purchase 90% of its printing ink and related products requirements for its Yonkers and Vancouver facilities from Sun for a term of three years (beginning on April 16, 2003). Agreement ¶¶ 3, 5. The Agreement provided that Sun would send an invoice to Excelsior each month for the "consignment ink or materials opened and prepared for use by Excelsior." Id. ¶ 4A. "[T]itle to the[se] containers of ink remained with Sun Chemical, and they were only charged to Excelsior once they were opened." Tr.*fn2 at 3:3-5; Agreement ¶ 6. It was agreed that Excelsior would be billed for consignment items "based on a physical inventory . . . each month." Agreement ¶ 4A. In addition, Excelsior would be billed for "unopened consignment items not used after 90 days. . . ." Id. Non-consignment items — that is, "[t]hose inks that were special order[s] that weren't part of the regular inventory [—] . . . were billed after they were delivered and were not based on whether the container was opened or not." Tr. at 3:35-4:3. Excelsior agreed to pay all invoices in full within 30 days. Agreement ¶ 4A. Interest on overdue amounts was agreed to accrue at the lesser of 1% per month or the maximum rate legally permissible. Id.

  In turn, Sun agreed to provide high quality products, as well as an on-site ink technician at each of Excelsior's two facilities. Id. ¶¶ 3, 1. The ink technician would serve a variety of functions, including, inter alia: ink room management, inventory control, color matching and ink blending, ink ordering, quality assurance, technical support, record keeping, and training. Id. ¶¶ 1, 2A-S. Sun also agreed to provide Excelsior with a monetary business incentive, the first payment of which was $200,000 to be paid upon execution of the contract. Id. ¶ 4B, App. B. This payment would "be amortized over the life of the contract." Id. App. B. In the event that "the contract is terminated prior to the term, the unamortized portion [would] become? payable within 30 days of termination." Id. Finally, Sun agreed to contribute $3,000 per month (up to a maximum of $100,000 over the term of the contact) towards the purchase or lease of ink dispensing equipment at Excelsior's Vancouver facility. Id. ¶ 7. At the Yonkers facility, Sun was to upgrade and maintain the existing equipment. Id. In the event of early termination, the Agreement provided that Sun "will remove the dispensing equipment" from the Yonkers facility. Id. Excelsior further agreed that it would "sign a UCC financing statement noting Sun['s] . . . continuing interest in all equipment, and . . . keep a notice stating (Property of Sun . . .) on the equipment? at all times." Id. However, the parties agreed that upon completion of the three year contract, "Sun will transfer ownership/title of the dispenser to Excelsior." Id.

  As for remedies in the event of a breach, Sun and Excelsior agreed that "[u]pon the occurrence of a material default, other than the payment of invoices . . ., by either party, the non-defaulting party shall notify the defaulting party in writing . . . and shall set forth with reasonable specificity the nature of the default." Id. ¶ 14C. The appropriate form of official notice was designated as certified mail, return receipt requested to individuals specified in paragraph 23 of the Agreement. After official notice, the defaulting party would have 60 days to cure the default. Should the default not be cured, the non-defaulting party would the have the right to terminate the Agreement, provided it did so in writing. With respect to a default in payment, the Agreement set out that in the event that Excelsior failed to correct a default in payment within 10 days, Sun would have "the right to 1) place Excelsior on COD; 2) terminate the Agreement; 3) withdraw the in-plant technicians from Excelsior's facilities; 4) remove Product inventory from Excelsior's facilities; and/or 5) exercise any and all other [legal] rights. . . ." Id. ¶ 14A. The parties agreed that New Jersey law would govern any dispute arising out of the Agreement. Id. ¶ 28.

  Finally, the Agreement contained a merger clause which provided that "the foregoing represents the entire understanding of the parties relating to the subject matter hereof, superceding all other understandings, written or oral, relating thereto." Id. ¶ 27. This clause also set out that "[s]hipments made by Sun . . . shall also be made in accordance with Sun['s] . . . standard general conditions," which "are printed on the back of Sun['s] . . . invoices. Id.

  B. Excelsior's Default

  It is undisputed that Excelsior failed to pay invoices within the 30 days provided for by the Agreement. In fact, Excelsior did not pay any invoices in a timely manner from April 2003 to April 2004. Sekowski Decl. ¶ 3; Gallagher Decl ¶ 6. According to Ronnie Shemesh, the CFO, CEO, and owner of Excelsior, "the invoices were fraudulent and not appropriate and over-billed and did not warrant payment because services were not rendered as per the in-plant supply agreement." Shemesh Dep. at 279:25-280:4. On February 16, 2004, Sun gave written notice of Excelsior's default. Mallon Decl., Ex. F ("Since our meeting of January 8th, where you had committed to activity on the? [outstanding] balances, repeated efforts to contact you have gone unanswered, and no payment activity has ensued."). Thereafter, Sun informed Excelsior by letter dated March 1, 2004 that it would terminate the Agreement with respect to Excelsior's Vancouver facility, remove the ink technician and consignment inventory at the Yonkers facility, and require that all future ink orders by paid C.O.D. Id., Ex. G. Finally, on March 25, 2004, Sun's senior corporate attorney informed Excelsior in writing that unless it paid the full outstanding balance of $486,942.67 from the two facilities, Sun would pursue legal remedies to recover the amounts due, its ink dispensing equipment, the unamortized portion of the $200,000 business incentive payment, and the costs of litigation. Id., Ex. H at 1. Excelsior did not respond and this lawsuit ensued.

  For his part, Shemesh, claims that Sun had a history of improper billing practices with Excelsior and owed Excelsior some $3-4 million for overcharges. E.g., Shemesh Decl. at 25-29. Nonetheless, after he purchased Excelsior from its previous owners, he agreed to renew the ink supply contract with Sun. Id. at 68:19-69:12. When questioned about his willingness to enter into a contract with a company he believed had committed substantial fraud, Shemesh asserted that it was very difficult and costly to change ink suppliers. Id. at 31:17-22, 69:8-10, 204:25-205:3. In response to Sun's allegations in this matter, Shemesh contends that Sun too was in breach of the Agreement one month after it was executed. According to Shemesh, Sun's invoices were inflated, id. at 202:14-23, and failed to, inter alia, upgrade and service the ink dispensing equipment, provide an ink technician and technical support, provide ink systems that could print with regularity, and contribute $3,000 per month to the Vancouver equipment, e.g., id. at 268:13-25, 277:2-11. As a result, Excelsior could not achieve the print quality or efficiency promised. Id. at 278:6-14. Shemesh asserts that he made numerous verbal complaints about Sun's purported over-billing and breaches and was informed by "management" that Sun was taking care of these issues. E.g., id. at 278:23-25. At no time did he provide written notice of Sun's purported breach pursuant to the terms of the Agreement. Id. at 221:19-222-21; 254:19-255:12; 278:15-21.

  II. DISCUSSION

  A. Standard of Review

  Pursuant to Fed.R.Civ.P. 56(c), a district court must grant summary judgment if the evidence demonstrates that "there is no genuine issue as to any material fact and [that] the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). "Summary judgment is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed to `secure the just, speedy ...


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