Hanwha Azdel, Inc. v. C&D Zodiac, Inc.

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 14-1654
HANWHA AZDEL, INC., f/k/a Azdel, Inc.,
Plaintiff – Appellant,
v.
C&D ZODIAC, INC.,
Defendant – Appellee,
and
NEENAH TECHNICAL MATERIALS, INC.,
Movant – Appellee.
Appeal from the United States District Court for the Western
District of Virginia, at Lynchburg. Norman K. Moon, Senior
District Judge. (6:12−cv−00023−NKM−RSB)
Argued: March 26, 2015 Decided: June 9, 2015
Before GREGORY, KEENAN, and WYNN, Circuit Judges.
Affirmed in part, vacated in part, reversed in part, and
remanded by unpublished opinion. Judge Wynn wrote the opinion,
in which Judge Gregory and Judge Keenan joined.
ARGUED: Frank Kenneth Friedman, WOODS ROGERS, PLC, Roanoke,
Virginia, for Appellant. Bevin Ray Alexander, Jr., FREEMAN,
DUNN, ALEXANDER, GAY, LUCY & COATES, PC, Lynchburg, Virginia;
James W. Evans, CHOATE, HALL & STEWART LLP, Boston,
Massachusetts, for Appellees. ON BRIEF: Francis H. Casola, Erin
B. Ashwell, WOODS ROGERS, PLC, Roanoke, Virginia, for Appellant.
Robert P. Silverberg, Claire L. Shapiro, SILVERBERG, GOLDMAN &
BIKOFF, LLP, Washington, D.C.; J. Barrett Lucy, FREEMAN, DUNN,
ALEXANDER, GAY, LUCY & COATES, PC, Lynchburg, Virginia, for
Appellee C&D Zodiac, Inc.; Mark D. Cahill, Jared M. Barnes,
CHOATE, HALL & STEWART LLP, Boston, Massachusetts, for Appellee
Neenah Technical Materials, Inc.
Unpublished opinions are not binding precedent in this circuit.
2
WYNN, Circuit Judge:
Hanwha Azdel, Inc. (“Azdel”), the manufacturer of a
thermoplastic composite sheet product called “Aero-Lite,”
entered into an agreement with aircraft sidewall manufacturer
C&D Zodiac, Inc. (“C&D”) to use Aero-Lite to manufacture
aircraft sidewalls for American Airlines (“American”). The
relationship deteriorated when the Aero-Lite sidewalls did not
live up to American’s expectations. C&D never paid Azdel for
the sheets of Aero-Lite that it ordered or that Azdel delivered
while the parties were working together. C&D later found a
partner in Crane & Co. (“Crane”), whose product proved
successful for use in sidewall manufacturing and met American’s
expectations.
Azdel filed this lawsuit to recover inter alia 1) the
contract price of 144 sheets of 2000 grams-per-square-meter
(“gsm”) Aero-Lite it delivered to C&D and which C&D forwarded to
its forming facility to be molded into sidewalls; 2) the
contract price of the remaining sheets of Aero-Lite reflected in
C&D’s original purchase order; 3) the contract price of eight
sheets of a lighter 1320 gsm Aero-Lite product it delivered to
C&D; and 4) damages for C&D’s disclosure of Azdel’s confidential
information to Crane. The parties filed cross-motions for
summary judgment. The district court denied Azdel’s motion and
granted C&D’s motion in toto. On appeal, Azdel challenges the
3
district court’s summary judgment rulings and its denial of
Azdel’s motion to compel discovery of certain documents from
Crane.
We affirm the district court’s grant of summary judgment to
C&D on Azdel’s confidentiality claims, and further rule that the
district court did not err in denying Azdel’s motion to compel.
However, we reverse the district court’s grant of summary
judgment to C&D because we hold that C&D accepted the 144 sheets
of 2000 gsm Aero-Lite by taking actions inconsistent with
Azdel’s ownership of those sheets; accordingly, we grant summary
judgment to Azdel as to this claim. We likewise reverse the
district court’s grant of summary judgment to C&D regarding
Azdel’s delivery of the eight sheets of 1320 gsm Aero-Lite and
grant summary judgment to Azdel on this claim because C&D
accepted these sheets. Finally, we hold that the district court
acted prematurely in granting summary judgment to C&D regarding
C&D’s liability under the original purchase order. Whether C&D
terminated is a question that must be resolved by a jury. We
therefore affirm in part, reverse in part, and vacate in part
the district court’s rulings and remand for trial on the
termination issue.
I.
A.
4
In March 2008, Azdel and C&D executed a Memorandum of
Understanding (“MOU”) memorializing the parties’ agreement to
work together to provide aircraft sidewalls for American
Airlines. The MOU was a preliminary agreement that would govern
the parties’ relationship while they worked to establish a more
permanent contract. Azdel was to manufacture sheets made of
2000 gsm Aero-Lite to be molded by C&D into aircraft sidewalls
for American. The MOU also provided that the parties would work
together to develop a “next-generation Aero-Lite material” and
set out a development schedule for that product. J.A. 2186.
The parties “anticipate[d] a 20-year commitment . . . during
which AZDEL [would] offer C&D exclusivity of supply for” various
programs. J.A. 2185 ¶¶ 2-3. Azdel also agreed to provide C&D
with “Most Favored Pricing.” J.A. 2186 ¶ 5.
The parties agreed that Azdel would manufacture 2000 gsm
Aero-Lite according to a “Specification” prepared by C&D and
modified as a result of feedback from Azdel. The Specification
was “fairly generic” and labeled as proprietary to C&D. J.A.
2033-35. Azdel warranted only that its product would comply
with the Specification and expressly disclaimed any warranty of
fitness for a particular purpose. Indeed, Paragraph 9 of the
agreement stated in no uncertain terms:
The Parties agree that suitability of the Product for
the American Airlines 757 program has been extensively
tested and investigated. AZDEL warrants only that
5
Products sold to C&D will conform to C&D’s
specifications in effect at the time of manufacture
and agreed in writing between AZDEL and C&D. AZDEL
expressly disclaims any warranty of fitness for a
particular purpose.
J.A. 2189-90 ¶ 9 (emphasis added).
The MOU required C&D to provide six-month forecasts of its
Aero-Lite requirements because, according to the agreement,
“[t]he Parties acknowledge that AZDEL’s supply chain
requirements for [2000 gsm Aero-Lite] result in long lead
times.” J.A. 2189. As a result, such forecasts were “binding
in that C&D will be committed to later issue a purchase order
for not less than the material requirements forecasted.” J.A.
2189 ¶ 7.B. Purchase orders were to be issued at least twelve
weeks before the anticipated ship date. C&D could make
reasonable changes in quantities or delivery dates by issuing
notice to Azdel thirty days prior to the expected delivery date.
Any other changes to purchase orders that came with less than
thirty days’ notice were subject to acceptance by Azdel.
Azdel retained “[t]itle to any shipment of the Products”
until C&D paid “all sums due to Azdel for that shipment, or
until the Product is no longer in sheet form.” J.A. 2189 ¶ 8.B.
While the MOU severely limited the extent of Azdel’s
warranties, C&D was protected by broad termination rights, as
laid out in Paragraph 11 of the agreement:
6
C. C&D shall have the right to terminate this MOU as well
as any open orders in connection thereto if: (i) the
material does not perform as predicted and is deemed not
suitable for C&D’s intended use, conversion, or processing;
and C&D has given the required 60 days’ notice and/or (ii)
the customer requests C&D to switch back to conventional
material/manufacturing methods.
J.A. 2190 ¶ 11.
In addition to establishing the parties’ rights and
obligations regarding the purchase and delivery of 2000 gsm
Aero-Lite, the MOU required the parties to maintain
confidentiality regarding certain information. Paragraph 12 of
the MOU provided that the MOU itself would remain confidential,
and referenced a “separate” “Confidentiality and Non-Disclosure
Agreement” (“NDA”) that would govern certain other
confidentiality obligations. J.A. 2191 ¶ 12. The NDA
prohibited the parties from disclosing confidential information
“conspicuously labeled” as such by the party seeking to prohibit
disclosure. J.A. 2194. The extensive list of materials that
was subject to non-disclosure included “costs and pricing” and
“prototypes.” J.A. 2194. Information “in the public domain,”
however, was not protected. J.A. 2195.
B.
On April 8, 2008, C&D issued a purchase order for 2900
sheets of 2000 gsm Aero-Lite, with deliveries staggered over
eight months (the “Original Purchase Order”). The Original
Purchase Order called for an initial 40-sheet delivery on June
7
11, 2008; a 110-sheet delivery on July 1, 2008; and a 550-sheet
delivery on October 1, 2008. The order identified the initial
40-sheet delivery as a “PRE-PRODUCTION REQUIREMENT.” J.A. 2350.
The 110 sheets scheduled for delivery on July 1st were labeled
as “FOR AUG. AND SEPT. REQUIREMENT.” J.A. 2350. According to
Chris Willis, Azdel’s project manager for Aero-Lite, the “pre-
production” label reflected that to determine the suitability of
Azdel’s Aero-Lite sheets for American, C&D would have to mold
some sheets into sidewall panels, perform initial tests, and
present a sample sidewall to American for further testing. C&D
employees shared that understanding.
On June 5, 2008, Azdel delivered a total of 144 sheets to
C&D. Without testing the sheets for conformity with the
Specification, C&D’s Quality Department forwarded the sheets on
to C&D’s forming facility to be molded into sidewalls. C&D
employees testified that C&D’s Quality Department did not
perform tests to determine whether to reject the product because
it believed the sheets of Aero-Lite were “samples, outside of
production requirements.” J.A. 2023.
At some point, C&D determined that the sheets Azdel
delivered were warped. The sheets were varyingly described as
having “an extreme ‘saddle’ type curl,” J.A. 2515, and “severely
twisted,” J.A. 1706. C&D hoped that the application of heat and
pressure during the molding process would mitigate the warpage
8
problem and proceeded to mold some of the sheets of Aero-Lite
into sidewalls. Unfortunately, as one Azdel employee put it,
the “[w]arped sheets mold[ed] into warped parts.” J.A. 1114.
C&D took a sample sidewall to American for a fit check in
late June 2008. Jay Zoller of American outlined eleven issues
with C&D’s product, including the fact that the panels were
“slightly twisted” and too heavy. J.A. 1704. Zoller asked C&D
to provide American with an action plan to address the issues he
identified. C&D sent a Change Request to American, asking that
existing Aero-Lite sidewalls be used in place of C&D’s
conventional “crushcore” product that C&D had previously
manufactured and used until a lighter weight Aero-Lite product
could be developed. The request was never signed by American.
C&D thus returned to providing conventional crushcore panels to
American.
On July 2, 2008, C&D sent a detailed e-mail to Azdel
outlining American’s problems with the sidewalls and noting that
the 2000 gsm sheets of Aero-Lite “definitely can not be used for
sidewall production.” J.A. 886. The e-mail also stated that
C&D was “investigating a number of projects to find a more
suitable application for [the 2000 gsm] sheets.” J.A. 886. C&D
further indicated that it would “continue to work with Azdel on
processing the curled material as time permits so that we all
9
get a better understanding of it, and can eliminate [the curl].”
J.A. 887.
When asked about the status of the October delivery by
other Azdel employees, Willis of Azdel stated “C&D has not
committed to taking anyone [sic] 2000 gsm at this time. . . .
All of this product should be put on hold.” J.A. 1480.
According to Willis, he had this impression based on previous
conversations with C&D personnel. Other employees at Azdel
believed that the purchase order had not been terminated,
stating, “If they want to cancel their current orders they must
update their release. All orders remain valid until the
customer cancels or revises their release.” J.A. 1478. In
response to Azdel’s request for a clarification of the status of
the order, C&D issued a revised purchase order on September 17,
2008, zeroing out all installments with a “0.00” notation (the
“Revised Purchase Order”). J.A 2353-54.
Twelve days later, C&D generated reports indicating that
the 2000 gsm Aero-Lite had been nonconforming, i.e., did not
meet the Specification. But C&D never provided those reports to
Azdel. 1
Thereafter, Azdel manufactured some lighter weight sheets
of Aero-Lite, and C&D molded and tested several of these
1
C&D conceded below that whether Azdel’s product conformed
to C&D’s specifications is a disputed issue of material fact.
10
iterations. On April 24, 2009, C&D ordered twenty sample sheets
of 1320 gsm Aero-Lite based upon a single $15,000 price for the
entire lot. In September 2008 and April 2009, Azdel issued
sample quotations and pricing letters for C&D’s purchase of 1320
gsm Aero-Lite. The pricing letter and quotations were all
marked confidential.
Azdel manufactured more than fifty sheets of the 1320 gsm
product but found only eight sheets worthy of delivery. C&D
formed these sheets into panels and informed Azdel that the
panels were tested “under American Airlines conditions” and
“passed.” J.A. 957. When C&D inquired as to whether Azdel
would produce the remaining sheets required by the twenty-sheet
order, Azdel indicated that it would not produce any more
sheets. C&D could not complete its full qualifications process
without a full delivery. Azdel billed C&D $6000 for those
sheets on a per sheet basis in August 2009. C&D told Azdel it
would pay for them after they were approved by American. Azdel
never received payment for the eight sheets it delivered.
C.
On October 30, 2009, C&D contacted Crane regarding
development of a product that would meet American’s
expectations. Crane produced a product similar to Aero-Lite
called Composite Aerospace Board (“CAB”) that ultimately proved
acceptable to American.
11
C&D provided Crane with the same or a similar version of
C&D’s specifications that had been attached to the MOU. In
addition, during C&D’s negotiations with Crane, it provided
Crane with a spreadsheet entitled “Historic Pricing Board.” The
spreadsheet contained tiered pricing for various quantities of
product at various weights. Some of the prices were the same or
similar to prices that appeared in Azdel’s pricing letters that
had been marked confidential. C&D’s historic pricing for the
1300 gsm product in certain quantities was the same as Azdel’s
pricing for Aero-Lite, but pricing for the 1300 gsm product in
other quantities differed. The historic pricing board also
included prices for 1200 gsm and 2000 gsm products not reflected
in Azdel’s pricing letters.
In March 2010 Crane provided C&D a report of Crane’s
testing of its CAB product. The report reflected that CAB had
been tested against a sheet of Azdel’s 1350 gsm Aero-Lite, a
separate product ordered by C&D from Azdel in October 2008. C&D
at times referred to 1320 gsm as 1350 gsm because certain steps
in processing resulted in a weight increase. On the other hand,
the photographs attached to the testing report identify the
Azdel product as 1500 gsm. The Crane witness who authored the
report testified that the Azdel product tested had been “a
commercially available” product. J.A. 1902-03. There is no
12
evidence that the panel or shipping papers associated with it
were marked confidential.
D.
Azdel’s original complaint raised three causes of action
for breach of contract alleging that C&D failed to pay Azdel for
Aero-Lite sheets pursuant to the MOU (Counts I-III). Count I
alleged that C&D failed to pay Azdel for the 144 sheets of Aero-
Lite delivered under the Original Purchase Order, and for
undelivered but manufactured sheets produced pursuant to that
purchase order. Count II alleged in the alternative that if C&D
did terminate the MOU and open purchase orders, C&D was
obligated to reimburse Azdel for raw materials, work in process,
and finished goods on hand at the time of the termination in
accordance with Paragraph 11.D of the MOU. 2 Count III sought
$6000 in compensation for the sample sheets of 1320 gsm Aero-
Lite that Azdel provided pursuant to an April 24, 2009 purchase
order.
Following discovery, Azdel amended its complaint to include
two additional causes of action (Counts IV and V), alleging that
C&D breached confidentiality provisions contained in the MOU and
the parties’ non-disclosure agreement. The district court
2
Azdel makes no effort to challenge the district court’s
dismissal of Count II on appeal.
13
bifurcated the damages portion of Counts IV and V from liability
issues.
Azdel supplemented its discovery requests, now seeking
discovery from Crane. Over the course of discovery, Crane
withheld or redacted certain documents it alleged were subject
to the common interest privilege pursuant to a common legal
interest it held with SABIC, a non-party that supplied resin to
Azdel throughout the development of Aero-Lite. Azdel moved to
compel production of these documents. A magistrate judge denied
Azdel’s objection, and the district court adopted the magistrate
judge’s recommendation, holding that “the record is sufficient
to establish that the disputed documents were communicated in
furtherance of a common legal interest between Crane and SABIC.”
J.A. 1255.
The parties filed cross-motions for summary judgment. The
district court granted C&D’s motion as to all counts and denied
Azdel’s motion. This appeal ensued.
II.
We review the grant or denial of a motion for summary
judgment de novo, drawing all inferences in favor of the
nonmoving party. Okoli v. City of Baltimore, 648 F.3d 216, 220
(4th Cir. 2011). Summary judgment may be granted only where
“there is no genuine dispute as to any material fact and the
14
movant is entitled to judgment as a matter of law.” Libertarian
Party of Va. v. Judd, 718 F.3d 308, 312–13 (4th Cir. 2013)
(internal quotation marks omitted). A dispute is genuine if “a
reasonable jury could return a verdict for the nonmoving party.”
Dulaney v. Packaging Corp. of Am., 673 F.3d 323, 330 (4th Cir.
2012). A fact is material if it “might affect the outcome of
the suit under the governing law.” Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986).
This matter is in federal court on diversity jurisdiction
pursuant to 28 U.S.C. § 1332. The parties agree that Virginia
law applies to Azdel’s claims arising from the MOU and related
purchase orders, and that California law applies to Azdel’s
claims under the NDA. 3
A.
We first address Azdel’s contention that C&D violated the
MOU’s confidentiality provision and the NDA by disclosing
confidential information to Crane during its development of CAB,
Crane’s alternative to Aero-Lite.
1.
Azdel first argues that C&D breached the NDA by disclosing
Azdel’s confidential pricing information to Crane. There is no
question that the “Historic Pricing Board” that C&D provided
3
The NDA’s choice of law provision provides that it shall
be construed in accordance with California law.
15
Crane contained prices that were the same or similar to prices
contained in two of Azdel’s pricing letters, each of which was
labeled “confidential.” J.A. 2363, 2398. Nor is there any
question that the NDA prohibited C&D from disclosing “cost and
pricing” information that Azdel marked as confidential. J.A.
2194 ¶ (C).
Yet the pricing board was not a reflection of past prices;
rather, it was an indication of what C&D would be willing to pay
for Crane’s product. Nothing in the parties’ agreements
prohibited C&D from indicating to third parties what it would be
willing to spend. 4 To the extent the pricing board contained
historic prices, C&D did not disclose that they were Azdel’s.
And while several of the prices that C&D gave Crane were the
same as Azdel’s, others were not. Thus, we find no error in the
district court’s ruling that C&D did not disclose Azdel’s
confidential pricing information in violation of the NDA.
2.
Azdel next contends that C&D violated the NDA by giving
Crane a sheet of Azdel’s prototype 1320 gsm Aero-Lite so that it
4
We do not mean to suggest that a company’s pricing scheme
cannot be the subject of a confidentiality agreement. We hold
only that no violation of the NDA occurred here, where
disclosure of prices that partially aligned with Azdel’s was
incidental to C&D’s pricing negotiations.
16
could be tested against Crane’s CAB. The parties dispute
whether C&D provided a prototype 1320 gsm sheet of Aero-Lite or
a 1350 gsm sheet of commercially available material.
As an initial matter, there is no evidence in the record to
suggest that any of the 1320 gsm sheets of Aero-Lite or any of
the shipping papers accompanying the 1320 gsm sheets that Azdel
delivered to C&D identified the sheets as confidential
prototypes. The only document marked confidential in connection
with the 1320 gsm sheets is an internal order form for the 1320
gsm sheets. However, that order form also described the 1320
gsm sheets as “commercial.” J.A. 2543.
Azdel argues that the parties did not intend for the
prototype sheets of Aero-Lite themselves to be marked as
confidential, noting that C&D’s plant manager testified that he
would not expect a confidential prototype to be stamped with the
word “confidential.” Azdel would thus read out of the NDA the
requirement that “Confidential Information . . . shall at all
times be conspicuously labeled by the disclosing Party as
‘Confidential,’” or read into it an exception for “prototypes.”
J.A. 2194.
Even assuming that such an exception could be read into the
NDA, the evidence in the record does not support an inference
that the sheet tested by Crane was a prototype sheet of 1320
gsm. Crane’s testing report identified the sheet as “1350 gsm”
17
not “1320 gsm,” and the photographs attached to the testing
report identify the Azdel product as “1500 gsm.” J.A. 1031.
While a Crane employee testified that he could not recall the
weight of the Aero-Lite sheet tested, he did recall that it was
“commercially available.” J.A. 1902-03. Furthermore, though
there is evidence in the record suggesting that C&D had, at
times, referred to Azdel’s 1320 gsm as 1350 gsm, this alone
would not support a reasonable inference that the sheet tested
by Crane was in fact 1320 gsm. 5
In sum, based on this record, no reasonable juror could
conclude that C&D’s disclosure of Azdel’s product violated the
NDA. We therefore hold that the district court did not err in
granting summary judgment for C&D on this claim.
3.
Finally, Azdel argues that C&D violated its confidentiality
obligations by disclosing specifications similar to the
Specification referenced in the MOU. Azdel concedes that it
failed to mark the Specification confidential and, therefore,
5
Azdel also argues that the 1350 gsm Aero-Lite was also not
commercially available and was therefore covered under the NDA.
This argument has been made for the first time on appeal and is
therefore waived. See Karpel v. Inova Health Sys. Servs., 134
F.3d 1222, 1227 (4th Cir. 1998) (“We have repeatedly held that
issues raised for the first time on appeal generally will not be
considered.”).
18
that the Specification does not receive protection under the
NDA. However, Azdel contends that the Specification is
nonetheless covered by Paragraph 12 of the MOU, which bars
disclosure of “this MOU.” J.A. 2191 ¶ 12. Because the
Specification was referenced in and attached to the MOU, Azdel
reasons that it is a part of the MOU for purposes of Paragraph
12.
In support of this argument, Azdel cites Countryside
Orthopaedics, P.C. v. Peyton, in which the Supreme Court of
Virginia stated, “where two papers are executed at the same time
or contemporaneously between the same parties, in reference to
the same subject matter, they must be regarded as parts of one
transaction, and receive the same construction as if their
several provisions were in one and the same instrument.” 541
S.E.2d 279, 284 (Va. 2001) (internal quotation marks omitted).
This uncontroversial statement of Virginia contract law has no
bearing on whether the Specification is subject to the MOU’s
confidentiality provision. Countryside Orthopaedics was merely
referencing the familiar maxim that “[w]here a business
transaction is based upon more than one document executed by the
parties, the documents will be construed together to determine
the intent of the parties.” Id. (internal quotation marks
omitted).
19
The question before us is not whether the MOU and the
Specification ought to be construed alongside one another as
part of the same transaction. Rather, the success of Azdel’s
claim hinges on whether, by using the term “MOU” in Paragraph
12, the parties intended to allow Azdel to prevent disclosure of
C&D’s specifications. We conclude that they did not.
Crucially, the Specification was conspicuously marked as
proprietary to C&D and included the following disclaimer: “THE
INFORMATION CONTAINED HEREIN MUST NOT BE REPRODUCED OR COPIED OR
OTHERWISE DISCLOSED IN WHOLE OR IN PART WITHOUT THE WRITTEN
APPROVAL OF C&D ZODIAC, INC.” J.A. 2198. In fact, the MOU
refers to the Specification as “C&D’s specifications.” 2189 ¶
9. In addition, Paragraph 12 of the MOU refers to attachments
to the MOU as “separate” from the MOU. For example, Paragraph
12 provides, “Refer to Attachment ‘A’ for details in the form of
a separate Confidentiality and Non-Disclosure Agreement between
the Parties.” J.A. 2191 (emphasis added). 6
In sum, it is clear that the parties did not intend for the
term “this MOU” to apply to C&D’s specifications. Thus, the
district court correctly held that disclosure of C&D’s
6
Because we hold that C&D did not breach its
confidentiality obligations to Azdel, we need not reach the
issue of whether the district court erred in dismissing Azdel’s
claims for failure to put forward evidence that C&D’s breach
caused actual damages.
20
specifications did not violate the MOU’s confidentiality
provision.
B.
We next address Azdel’s claim that it is entitled to the
contract price of the 144 sheets of 2000 gsm Aero-Lite it
shipped to C&D and which C&D forwarded to its forming facility
to be molded into aircraft sidewalls.
Generally, where a buyer accepts goods but does not pay for
them, the seller is entitled to recover the contract rate for
the goods. See Va. Code § 8.2-607(1) (“The buyer must pay at
the contract rate for any goods accepted.”); id. § 8.2-703
(remedies of seller); see also Green Hill Corp. v. Greenko
Corp., 891 F.2d 286 (4th Cir. 1989) (unpublished). Under the
Virginia Uniform Commercial Code, acceptance of goods occurs
when the buyer
(a) after a reasonable opportunity to inspect the goods
signifies to the seller that the goods are conforming or
that he will take or retain them in spite of their
nonconformity; or
(b) fails to make an effective rejection, but such
acceptance does not occur until the buyer has had a
reasonable opportunity to inspect them; or
(c) does any act inconsistent with the seller’s ownership .
. . .
Va. Code § 8.2-606(1).
A reasonable inspection may occur “at any reasonable place
and time and in any reasonable manner,” id. § 8.2-513(1), and
21
the “place or method of inspection” may be “fixed by the
parties.” Id. § 8.2-513(4).
Notably, Official Comment 4 to Va. Code § 8.2-606 states
that “the provisions of paragraph (c) are subject to the
sections dealing with rejection by the buyer which permit the
buyer to take certain actions with respect to the goods pursuant
to his options and duties imposed by those sections, without
effecting an acceptance of the goods.” In other words, where a
buyer’s reasonable inspection would be otherwise inconsistent
with the seller’s ownership of the goods, such inspection on the
part of the buyer will not be deemed an acceptance. However,
the meaning of “inspection” is limited to “the buyer’s check-up
on whether the seller’s performance is in accordance with [the
parties’] contract.” Official Comment 9 to § 8.2-513.
Azdel contends that when C&D’s quality department forwarded
the sheets of Aero-Lite to its forming facility to be molded
into sidewalls, C&D acted inconsistently with Azdel’s ownership
of the sheets and thereby accepted them. We agree.
C&D’s molding of the sheets of Aero-Lite was clearly
inconsistent with Azdel’s ownership of the Aero-Lite sheets.
Molding the Aero-Lite into sidewalls was a substantial
modification that irreversibly altered the condition of Azdel’s
product. Moreover, the parties contemplated that the molding of
the sheets of Aero-Lite constituted a point of no return with
22
respect to ownership of Azdel’s product. Azdel lost title as
soon as they were no longer in sheet form. See J.A. 2189 ¶ 8
(stating that title to Azdel’s product will remain with Azdel
until the “Product is no longer in sheet form”). Virginia
precedent supports this conclusion. See, e.g., Moore & Moore
General Contractors, Inc. v. Basepoint, Inc., 485 S.E.2d 131,
133 (Va. 1997) (holding that a contractor’s installation of
nonconforming cabinets constituted an act inconsistent with
subcontractor’s ownership and amounted to acceptance of goods);
see also Laurence Anderson on the Uniform Commercial Code 3d., §
2-606:64 “Modification of Goods” (“When the buyer has not
rejected the goods and has made a substantial modification to
them, the buyer is deemed to have accepted the goods.”).
The only way that C&D would not be required to pay for the
delivered sheets of 2000 gsm Aero-Lite is if its actions in
molding the sheets into sidewalls and presenting them to
American for a fit check constituted a reasonable inspection of
the goods, or if such a method of inspection was “fixed by the
parties.” Va. Code § 8.2-513(4). Below, the district court
concluded that “where [C&D] was not otherwise allowed to fully
test any Aero-Lite sheets, the type of reasonable inspection
agreed upon by the parties included the molding trials that
Defendant conducted as well as the fit check to see how the
molded sheets would perform upon installation.” J.A. 2159. The
23
district court relied in large part on the fact that the
purchase order issued by C&D states that the first scheduled
delivery of Aero-Lite was for “PRE-PRODUCTION,” and that the
parties understood that “pre-production” was a term designed to
allow C&D to internally evaluate the product and allow American
to sign off on the product. J.A. 2157. Thus, according to the
district court, actions taken by C&D that were inconsistent with
Azdel’s ownership of the goods did not effect an acceptance
because C&D had not yet had the opportunity to conduct a
reasonable inspection.
Regardless of whether the initial delivery of Aero-Lite was
necessary for C&D to determine the suitability of Azdel’s
product for its own internal process or for American, the pre-
production requirement has no bearing on whether the product
that Azdel delivered to C&D conformed to the parties’ contract,
i.e., complied with the Specification. Under the Virginia UCC,
C&D’s reasonable inspection of Azdel’s product was limited to
determining whether the delivered sheets of 2000 gsm Aero-Lite
conformed to the Specification. It does no good to say that
C&D’s molding of the sheets of Aero-Lite into sidewalls did not
constitute an acceptance because “[C&D] was not otherwise
allowed to fully test any Aero-Lite sheets.” J.A. 2159. To the
contrary, the parties stipulated in their agreement that the
suitability of Azdel’s product had been extensively tested.
24
There is also no indication in the record that C&D would have
been prevented from testing the 2000 gsm sheets of Aero-Lite to
determine whether it complied with the Specification before
molding them into sidewalls. To permit C&D to condition its
acceptance of Azdel’s product on its determination that the
product is suitable to American would entirely eviscerate the
MOU’s warranty provision and the parties’ bargained-for
allocation of risk.
The decision of the Supreme Court of Virginia in Twin Lakes
Manufacturing Co. v. Coffey, a case relied upon by C&D on appeal
and cited by the district court below, is inapposite. 281
S.E.2d 864 (Va. 1982). In Twin Lakes, the court held that,
given the existence of latent structural defects in a mobile
home, the buyers of the mobile home did not waive the implied
warranty of merchantability when they installed the mobile home.
Id. at 866–67 (applying Va. Code. § 8.2-316(3)(b) (“[W]hen the
buyer before entering into the contract has examined the goods .
. . there is no implied warranty with regard to defects which an
examination ought in the circumstances to have revealed to
him.”)). The court did not remotely address the question
presented in this case: whether a buyer who irreversibly
modifies goods before inspecting them for compliance with the
buyer’s own specifications accepts those goods under the
Virginia UCC.
25
Lastly, while provisions in the MOU permitted C&D to
terminate the MOU as well as any purchase orders in the event
that “the material does not perform as predicted and is deemed
not suitable for C&D’s intended use, conversion, or processing,”
J.A. 2190 ¶ 11.C, C&D’s termination rights under the MOU do not
alter its obligations with respect to delivered goods under the
Virginia UCC.
Thus, the district court erred in denying Azdel’s claim
regarding the 144 sheets of delivered 2000 gsm Aero-Lite.
C.
Azdel also contends that C&D is liable for the sheets of
Aero-Lite it ordered pursuant to the Original Purchase Order.
The district court held that C&D terminated the Original
Purchase Order on July 2, 2008, when Del Pinto of C&D e-mailed
Willis of Azdel following the disappointing fit check. In the
alternative, the district court held that C&D terminated the
Original Purchase Order on September 17 when it issued a revised
purchase order zeroing out all quantities of 2000 gsm Aero-Lite. 7
7
C&D also appears to contend in its briefs that the MOU
itself and perhaps any open purchase orders “self-terminated”
pursuant to what it terms the MOU’s “self-termination
provision.” Paragraph 6 of the MOU provides that “This MOU
shall begin on the Effective Date and shall remain in force for
the duration of the American Airlines 757 Program or until a
long-term agreement is executed between the Parties, whichever
occurs first.” J.A. 2188 ¶ 6. C&D implies that the MOU self-
terminated as of the time American expressed dissatisfaction
with the 2000 gsm Aero-Lite sidewalls, i.e., after the fit
26
1.
To determine whether C&D terminated the Original Purchase
Order, we must first assess whether the preconditions for
termination under the contract were met—whether C&D had the
right to terminate the Original Purchase Order in the first
place. 8 The MOU gave C&D “the right to terminate this MOU as
well as any open orders in connection thereto if: (i) the
material does not perform as predicted and is deemed not
suitable for C&D’s intended use, conversion, or processing, and
C&D has given the required 60 days’ notice and/or (ii) the
customer requests C&D to switch back to conventional
material/manufacturing methods.” J.A. 2190 ¶ 11.C. The
district court concluded that both conditions were met in this
check. Yet there is nothing in the MOU to suggest that
American’s failure to immediately accept the sidewalls would
constitute an end to the American Airlines 757 Program. Thus,
C&D’s reliance on the self-termination provision is misplaced.
8
In addition to arguing that the preconditions for
termination were not met in this case, Azdel contends that
Paragraph 11 of the contract only permitted C&D to terminate the
MOU in conjunction with any purchase orders. According to
Azdel, C&D and Azdel went on to produce 1320 gsm Aero-Lite under
the terms of the MOU, and therefore, “[b]y letting [C&D] walk
away from the 2000GSM Aero-Lite purchase order when it was not
walking away from the agreement,” we would be permitting C&D to
“have its cake and eat it too.” Appellant’s Br. at 57. Azdel’s
restrictive reading of paragraph 11.C is untenable. This
provision gave C&D the right to terminate the MOU and any open
purchase orders in connection with the MOU. It does not state
that C&D may terminate open purchase orders only when it
terminates the MOU.
27
case. We will address each precondition for termination
separately.
a.
We first consider whether Azdel had the right to terminate
the MOU as well as any open purchase orders under Paragraph
11.C(i). That right hinges on a determination of whether
Azdel’s product “did not perform as predicted and is deemed not
suitable for C&D’s intended use.” J.A. 2190 ¶ 11.C(i).
Azdel contends that Paragraph 11.C(i) permitted C&D to
terminate the Original Purchase Order only if its product failed
to meet the requirements of the Specification. The plain
language of the MOU simply does not support Azdel’s
interpretation. Notwithstanding the fact that the MOU provides
that “the parties agree that the suitability of the Product for
American Airlines 757 program has been extensively tested and
investigated,” J.A. 2189 ¶ 9, Paragraph 11.C(i) clearly
contemplates that C&D may “deem” Azdel’s product nonetheless
unsuitable. Had the parties intended to limit C&D’s termination
rights to an instance in which Azdel’s product failed to comply
with the Specification, they easily could have done so. They
did not. Thus, C&D was permitted to terminate the MOU and open
purchase orders even where Azdel’s product satisfied the
Specification if it determined that the product did not perform
as predicted and C&D deemed it unsuitable.
28
Contrary to Azdel’s assertions, the record establishes that
Azdel’s 2000 gsm Aero-Lite did “not perform as predicted” and
was “not suitable for C&D’s intended use, conversion, or
processing.” J.A. 805. Though C&D hoped that molding the Aero-
Lite into sidewalls might ameliorate the warpage problem and
notwithstanding the prior extensive testing done on the product,
the warped Aero-Lite resulted in warped sidewalls that were
unsuitable for American’s use.
b.
We next consider whether C&D had the right to terminate the
Original Purchase Order under Paragraph 11.C(ii) of the MOU,
which gives C&D the right to terminate any open purchase orders
in the event that “the customer requests C&D switch back to
conventional material/manufacturing methods.” J.A. 2190. In
contrast to Paragraph 11.C(i), the termination rights conveyed
by Paragraph 11.C(ii) do not require sixty days’ notice.
Azdel argues that American did not “request” that C&D
“switch back” to using conventional materials under
Paragraph 11.C(ii). While conceding that American never
affirmatively requested C&D to switch back to crushcore, C&D
nonetheless suggests that the term “requests” should be given a
broader meaning. After the fit check, American gave C&D
feedback and required C&D to create an action plan that, among
other things, reduced the weight of the product. By requiring a
29
product of a different weight, C&D contends American was
essentially requesting that C&D revert to crushcore. C&D also
points to the fact that American had the “ultimate” decision of
what product it would use in its aircraft. J.A. 736. In other
words, according to C&D, because American took actions that
resulted in C&D reverting back to crushcore, and because
American ultimately had discretion as to whether to use
crushcore in its planes, American did in fact, in some sense of
the word, “request” that C&D “switch back” to crushcore.
C&D ignores uncontested evidence in the record precluding
such a holding. Indeed, American’s own employee testified that
American did not make the decision to reject Aero-Lite, rather,
it “assumed [C&D] determined that it would not meet our needs,
because they changed materials.” J.A. 1653. Furthermore, it
was C&D that proposed it have crushcore on hand in the event
that the Aero-Lite material did not meet American’s
expectations, and it was C&D’s choice to supply crushcore while
Aero-Lite was being developed. Given the extent of C&D’s
influence on the decision to use crushcore while Aero-Lite
development continued, it can hardly be said that American
“requested” that C&D “switch back” to conventional manufacturing
methods within the meaning of the MOU. American was open to
accepting an Aero-Lite based product that met its needs.
30
Because C&D did not have termination rights under Paragraph
11.C(ii), it could not terminate the Original Purchase Order
without giving Azdel sixty days’ notice of its intent to do so.
2.
We must next consider whether C&D provided an effective
notice of termination under the Virginia UCC. The district
court concluded and C&D maintains that effective notice of
termination was given on July 2, 2008, when Del Pinto of C&D
sent an e-mail to Willis of Azdel stating among other things
that Azdel’s 2000 gsm sheets of Aero-Lite “definitely can not be
used for sidewall production” and, at the very least, on
September 17, 2008, when C&D issued its revised purchase order
zeroing out all ordered quantities of Azdel’s product.
Under the Virginia UCC, “[a] person ‘notifies’ or ‘gives’ a
notice or notification to another person by taking such steps as
may be reasonably required to inform the other person in
ordinary course, whether or not the other person actually comes
to know of it.” Va. Code § 8.1A-202(d). In conducting this
analysis at the summary judgment stage we must be mindful that
under the UCC, courts typically reserve questions of
reasonableness for the finder of fact. See, e.g., Zidell
Explorations, Inc. v. Conval Int’l, Ltd., 719 F.2d 1465, 1473–74
(9th Cir. 1983) (reasonableness of notice of termination to be
decided by jury); St. Ansgar Mills, Inc. v. Streit, 613 N.W.2d
31
289, 295 (Iowa 2000) (collecting cases, from various
jurisdictions, holding that the determination of reasonableness
under the UCC is a factual question inappropriate for summary
judgment.); cf. Flowers Baking Co. of Lynchburg, Inc. v. R-P
Packing, Inc., 329 S.E.2d 462, 466-67 (Va. 1985) (whether
rejection based on nonconforming goods occurred within a
reasonable period of time is a question for the jury).
a.
We first address the July 2 e-mail. C&D did not state in
its July 2 e-mail that it was terminating the Original Purchase
Order and in fact made no reference to that order whatsoever.
The e-mail even alluded to other uses for the product,
indicating that C&D was “investigating a number of projects to
find a more suitable application for [the 2000 gsm] sheets.”
J.A. 886. The e-mail also stated that C&D would “continue to
work with Azdel on processing the curled material.” J.A. 887.
We recognize that some evidence suggests a termination.
Willis of Azdel believed that C&D had not committed to
additional sheets of Aero-Lite based on conversations he had had
with C&D personnel. Specifically, Willis stated that he “knew
the customer no longer wanted the product” “based on
communications that had taken place . . . with Danny Martin.”
J.A. 699. When asked about the status of the October delivery
by other Azdel employees, Willis stated “C&D is not committed to
32
taking anyone [sic] 2000 gsm at this time. . . . All of this
product should be put on hold.” J.A. 1480. However, others at
Azdel believed C&D remained committed to its orders of 2000 gsm
Aero-Lite, stating, “If they want to cancel their current orders
they must update their release. All orders remain valid until
the customer cancels or revises their release.” J.A. 1478.
In sum, one could conclude from the July 2 e-mail that C&D
wanted Azdel to treat the Original Purchase Order as having been
terminated. However, we are not convinced that this is the only
reasonable interpretation of the e-mail and the surrounding
circumstances. We thus conclude that the district court acted
prematurely in removing this question from the province of a
jury.
b.
On the other hand, we agree with the district court that
the Revised Purchase Order issued on September 17 effectively
terminated the Original Purchase Order. That document inserted
“0.00” as the amount due in connection with each delivery, added
“*** THIS LINE HAS BEEN REVISED ***” before each listed line
item, and in connection with all deliveries other than those
already delivered, stated, “CANCEL ORDER.” J.A. 2354. There is
only one way to read these changes to the purchase order.
Because we concluded above that C&D only had the right to
terminate the Original Purchase Order pursuant to 11.C(i), the
33
Revised Purchase Order is only effective, as a termination,
sixty days after it was issued. The district court concluded
that if the Revised Purchase Order was the only valid
termination of the Original Purchase and the sixty-day notice
requirement applied, C&D would be liable for “December 2008
through February 2009 deliveries totaling 1,650 sheets” but that
“Defendant would not be liable for the cost of the final 1,650
sheets.” J.A. 2165. In the event that a jury concludes that
C&D’s July 2 e-mail did not constitute effective notice of
termination, we agree that C&D will be liable under the Original
Purchase Order in accordance with the district court’s
assessment.
D.
Under Count III of the Complaint, Azdel seeks to recover
$6000 billed to C&D for the eight sheets of 1320 gsm Aero-Lite
delivered to C&D in August 2009. C&D contends that it has no
obligation to pay for this partial delivery of eight out of
twenty ordered sheets because the purchase order for the 1320
gsm Aero-Lite was based upon a single $15,000 price for the
entire lot, and Azdel failed to complete the order.
Under Va. Code § 8.2-601, “if the goods or the tender of
delivery fail in any respect to conform to the contract, the
buyer may (a) reject the whole; or (b) accept the whole; or (c)
accept any commercial unit or units and reject the rest.” Under
34
Section 8.2-607(2), “[a]cceptance of goods by the buyer
precludes rejection of the goods accepted and if made with
knowledge of a nonconformity cannot be revoked because of it
unless the acceptance was on the reasonable assumption that the
nonconformity would be seasonably cured but acceptance does not
of itself impair any other remedy provided by this title for
nonconformity.”
C&D contends that its order for twenty sheets of Aero-Lite
constituted a “commercial unit” under the UCC. The mere fact
that the sheets were priced as a batch of twenty, however, does
not render them a commercial unit. Further, C&D’s contention
that the twenty sheets were a unit is belied by the fact that it
told Azdel it was merely awaiting final approval from American
to “release Azdel for production,” J.A. 957, and that it would
pay for the 1320 gsm sheets when they received approval from
American.
C&D never rejected the eight sheets of Aero-Lite that
Azdel delivered. It formed them into sidewall panels, tested
them, and promised to pay for them after they received
American’s approval. Under these circumstances, C&D must pay
for the eight sheets of 1320 gsm that it accepted.
35
III.
Finally, Azdel appeals the district court’s denial of
Azdel’s motion to compel certain Crane documents that the
district court deemed protected under the common interest
privilege. We review factual findings as to whether a privilege
applies for clear error, and the application of legal principles
de novo. In re Grand Jury Subpoena, 341 F.3d 331, 334 (4th Cir.
2003).
“The joint defense privilege, an extension of the attorney-
client privilege, protects communications between parties who
share a common interest in litigation.” In re Grand Jury
Subpoena: Under Seal, 415 F.3d 333, 341 (4th Cir. 2005) (citing
United States v. Schwimmer, 892 F.2d 237, 243–44 (2d Cir.
1989)). The privilege allows “persons with a common interest to
‘communicate with their respective attorneys and with each other
to more effectively prosecute or defend their claims.’” Id.
(quoting In re Grand Jury Subpoenas 89–3 and 89–4, John Doe 89–
129, 902 F.2d 244, 249 (4th Cir. 1990)). The proponent of the
privilege has the burden to establish that the parties had “some
common interest about a legal matter.” Sheet Metal Workers
Int’l Ass’n v. Sweeney, 29 F.3d 120, 124 (4th Cir. 1994).
Importantly, “it is unnecessary that there be actual
litigation in progress for this privilege to apply.” United
States v. Aramony, 88 F.3d 1369, 1392 (4th Cir. 1996). Indeed
36
we have recognized that “[w]hether an action is ongoing or
contemplated . . . the rationale for the joint defense rule
remains unchanged.” In re Grand Jury Subpoenas 89–3 and 89–4,
John Doe 89–129, 902 F.2d at 249.
While Azdel does not challenge the existence of a common
legal interest between Crane and SABIC, 9 it argues that Crane
failed to establish that it had a “joint legal strategy” with
SABIC. Appellant’s Br. at 31. Yet we have never held that in
order to assert the common legal interest privilege, the party
asserting the privilege must put forward evidence establishing
the details of a joint legal strategy. Moreover, such a holding
would undermine the logic of our prior cases holding that the
privilege applies even to actions which are not “ongoing.” See,
e.g., In re Grand Jury Subpoenas 89–3 and 89–4, John Doe 89–129,
902 F.2d at 249. We therefore affirm the district court’s
denial of Azdel’s motion to compel.
9
Indeed, SABIC received a letter from Azdel outlining
claims that Azdel might bring against SABIC. Because those
claims implicated Crane’s interests, Crane and SABIC entered
into a common interest agreement. Thus, there can be no doubt
that a common legal interest existed between the two entities.
37
IV.
For the foregoing reasons, we
AFFIRM IN PART,
VACATE IN PART,
REVERSE IN PART,
AND REMAND.
38