Lennox Industries Inc. v. Alliance Compressors LLC

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
LENNOX INDUSTRIES, INC. and )
ALLIED AIR ENTERPRISES LLC. )
)
Plaintiffs, )
)
v. ) C.A. No. N19C-03-045 AML CCLD
)
ALLIANCE COMPRESSORS LLC, )
)
Defendant. )
Submitted: July 1, 2021
Decided: October 25, 2021
MEMORANDUM OPINION
Upon Defendant’s Motion for Summary Judgment - GRANTED
Richard P. Rollo, Travis S. Hunter, and Alexandra M. Ewing of RICHARDS,
LAYTON, & FINGER, P.A., Wilmington, Delaware; Eric B. Halper and N. Cyrus
Bayar of MCKOOL SMITH P.C., New York, New York, Attorneys for Plaintiffs
Lennox Industries, Inc. and Allied Air Enterprises LLC.
Jon E. Abramczyk, D. McKinley Measley, and Alexandra M. Cumings, of MORRIS,
NICHOLS, ARSHT, & TUNNELL LLP, Wilmington, Delaware; James F. Bennett,
John D. Comerford, of DOWD BENNETT LLP, St. Louis, Missouri, Attorneys for
Defendant Alliance Compressors, LLC.
LEGROW, J.
The plaintiff in this case manufactures air conditioning units and, in a joint
venture with another manufacturer, created the defendant company to manufacture
the compressors needed for the plaintiff’s units. In 1996, the parties entered into a
fifty-year supply agreement whereby the plaintiff committed to purchase annually a
contractually specified percentage of the plaintiff’s total compressor needs.
Although the defendant only manufactures one type of compressor, the supply
agreement bases the plaintiff’s minimum purchase percentage on the plaintiff’s total
usage of compressors, regardless of their form. For twenty years, the plaintiff easily
met its minimum purchase obligation, but the plaintiff’s purchases declined in the
past decade. In 2017, the plaintiff told the defendant that, under the plaintiff’s
understanding of the supply agreement, only compressor types the defendant
manufactured were included in the total usage calculation. The defendant disagreed,
asserting that the supply agreement required the plaintiff to account for its total usage
of all compressor types.
After engaging in a dispute resolution process mandated by their contract, the
parties were unable to resolve their disagreement, and the plaintiff filed this action
seeking declaratory judgment that its interpretation of the supply agreement is
correct. At the close of discovery, the defendant moved for summary judgment,
arguing the supply agreement’s plain and unambiguous language contradicts the
plaintiff’s purported interpretation. Because (i) the plain terms of the supply
1
agreement include in the total usage calculation all compressor types the plaintiff’s
business uses, (ii) no latent ambiguity exists as to the supply agreement’s terms, and
(iii) the plaintiff failed to offer sufficient evidence to show by clear and convincing
evidence that the parties waived or modified the agreement’s terms, the defendant’s
motion for summary judgment is granted.
BACKGROUND
Unless otherwise noted, the following facts are undisputed. Plaintiff Lennox
Industries Inc. (“Lennox”) manufactures air conditioning units. In 1993, Lennox
and another air conditioning manufacturer, American Standard Inc. (now “Trane”),1
formed Defendant Alliance Compressors LLC (“Alliance”) to ensure Lennox and
Trane a reliable supply of compressors, which are essential components in air
conditioning units.2 In 1996, subsidiaries of Emerson Electric Co. (“Emerson”), a
compressor manufacturer, joined Alliance and assumed control of developing
Alliance’s manufacturing operations. In connection therewith, Emerson invested
substantial capital to build Alliance’s manufacturing facility in Natchitoches,
Louisiana.3 Emerson now holds a 51% interest in Alliance, while Lennox and Trane
each hold a 24.5% interest.4
1
American Standard, Inc. became Trane in 2007 and was acquired by Ingersoll Rand. As did the
parties in their briefing, the Court refers to this entity as “Trane” throughout the opinion
regardless of time period.
2
Def.’s Mot. at 3.
3
Id. at 4.
4
Pl.’s Resp. at 5-6.
2
At the time Alliance was formed, reciprocating compressors were the
dominant compressor used by air conditioning manufacturers.5 Over time,
additional types of compressors have been introduced into the market, such as fixed
scroll, two-stage, variable speed, and rotary compressors.6 Lennox uses a variety of
different compressors in its units. Alliance, however, only manufactures scroll
compressors.
In 1996, Lennox and Alliance entered into a supply agreement (the “Supply
Agreement”) whereby Lennox agreed to “purchase from [Alliance], a number of
Products equal to the applicable Target Level.”7 The Supply Agreement defined
Target Level as “in any year, a number of Products equal to the product of (i) the
Total Usage for such year multiplied by (ii) the Purchase Commitment Percentage
for such year.”8 An exhibit to the Supply Agreement specifies the Purchase
Commitment Percentage for each year of the contract. Total Usage is defined as
“the total number of compressors (whether in scroll, reciprocating or other form) in
the 1½ to 7 ton range that are used in such year by [Lennox] to satisfy the production
needs of the Business . . .”9 “Business” means Lennox’s heat pump and air
conditioning business conducted in North and Central America.10 In other words,
5
Id. at 4.
6
Id.
7
Def.’s Mot. at 5-6.
8
Id., Ex. 1, at 4.
9
Id., Ex. 1, at 5 (emphasis added).
10
Id. at 2.
3
expressed as a mathematical formula, Target Level = Total Usage x Purchase
Commitment Percentage. The parties’ present dispute is over the meaning of Total
Usage.
The Supply Agreement’s initial term is for fifty years and lasts through
2046.11 Section 4(b) of the Supply Agreement states, “[Lennox’s] obligations to
purchase Products in accordance with this Agreement are subject to [Alliance]
providing Products that are competitive on an overall basis taking into account price,
performance, quality, and delivery with other compressors available to [Lennox] at
the relevant time.”12 Section 2(a) of the Supply Agreement requires Lennox to use
all commercially reasonable efforts to satisfy its minimum purchase obligation.13
Lennox also is required to provide Alliance with a written statement (“Volume
Statement”) at the end of each year, setting forth its purchases and Total Usage for
the year.14
In 2013, Lennox approached Alliance’s general manager, Brent Schroeder,
about its need for variable speed compressors, and Alliance began creating a line of
variable speed compressors. Karl Zellmer, Alliance’s Vice President of Sales,
testified at his deposition that, in 2014, Alliance offered to “look the other way” with
11
Id., Ex. 2, II § 2.4.
12
Id., Ex. 1, § 4(b).
13
Id., Ex. 1, § 2(a).
14
Id., Ex. 9.
4
respect to Lennox’s variable speed compressor purchases until Alliance launched its
new line the next year.15 Around mid-2014, Alliance and Lennox discussed entering
into a separate sales agreement allowing Lennox to purchase variable speed
compressors from Emerson.16 During the negotiations, Lennox employee Ronnie
Yarber emailed Chris Mays, an employee of both Alliance and Emerson, asking if
Lennox’s purchases of variable speed scroll compressors from Emerson would count
as part of Total Usage for purposes of the Alliance Supply Agreement.17 Mays
indicated variable speed compressors would not count towards Total Usage, but also
stated variable speed compressors could be considered if Alliance manufactured
them in the future.18 Ultimately, however, the proposed sales agreement between
Lennox and Emerson never was executed.
Under the Supply Agreement, Lennox currently is required to purchase 56%
of its compressor needs from Alliance.19 During the first ten to fifteen years of the
Supply Agreement’s term, Lennox met and often exceeded its minimum purchase
obligation.20 Starting in 2010, however, Lennox began purchasing more
compressors from other suppliers and less from Alliance.21 In January 2016,
15
Zellmer Dep. at 132:18-133:5.
16
Def.’s Mot., Ex. 17 at 1-2.
17
Id., Ex. 17 at 1.
18
Id.
19
Id., Ex. 2.
20
Id. at 7.
21
Id.
5
Alliance requested a Volume Statement from Alliance for fiscal year 2015, which
indicated Lennox purchased 66% of its compressors from Alliance.22 Later in 2016,
at Alliance’s request, Lennox provided a Volume Statement for fiscal year 2016 that
reported Lennox purchased 56.4% of its compressor needs from Alliance.23 In
October 2017, however, Lennox informed Alliance that, in its view, only compressor
types that Alliance manufactures are included in Total Usage and, accordingly,
Lennox excluded variable speed compressors when calculating its Total Usage in
the 2015 and 2016 Volume Statement calculations.24 Paul Liddell, then Director of
Alliance Sales, explained in an email to Mr. Yarber that all compressors types were
to be included in Total Usage, not merely the type Alliance manufactures.25 Mr.
Liddell stated it was unclear why Mr. Mays had stated otherwise but that, in the
future, variable speed compressors must be included in the Volume Statement.26
The parties were unable to resolve their dispute as to the definition of Total
Usage. The parties first engaged in a contractually mandated dispute resolution
process, which proved unsuccessful. On March 5, 2019, Lennox commenced this
action, seeking declaratory judgment that its interpretation of the Supply Agreement
is correct.27 Two days later, Alliance filed a complaint in the Court of Chancery
22
Id., Ex. 10 at 1. Lennox’s Purchase Commitment Percentage in that year was 56%.
23
Id., Ex. 11 at 1.
24
Id., Ex. 14 at 1.
25
Id., Ex. 17 at 1-2.
26
Id.
27
Id. at 10.
6
claiming breach of contract and seeking a declaratory judgment and specific
performance.28 The Court of Chancery dismissed Alliance’s action for lack of
subject matter jurisdiction,29 after which Alliance filed in this action counterclaims
for declaratory judgment, anticipatory repudiation, and breach of contract. This
Court dismissed as unripe Alliance’s counterclaims for anticipatory repudiation and
breach of contract because the parties had not engaged in the alternative dispute
resolution process required by the LLC Agreement.30 At the conclusion of
discovery, Alliance moved for summary judgment as to Count I of Lennox’s
complaint and Count III of Alliance’s counterclaim. After briefing and oral
argument, the Court took the motion under advisement.
PARTIES’ CONTENTIONS
Alliance argues summary judgment should be granted in its favor because the
Supply Agreement’s unambiguous language requires Lennox to include all forms of
compressors in its Total Usage calculation.31 Alliance asserts Lennox’s
interpretation of the Supply Agreement would lead, illogically, to the point that
Lennox is not required to purchase any compressors from Alliance.32 Alliance
28
Id.
29
Alliance Compressors LLC v. Lennox Industries, Inc., C.A. No. 2019-0186-KSJM (Jan. 6,
2020).
30
Lennox Indus. Inc. and Allied Air Enterprises LLC v. Alliance Compressors LLC, C.A. No.
N19C-03-045 AML CCLD (Aug. 10, 2020).
31
Def.’s Mot. at 11.
32
Id. at 15, 17.
7
further argues that, although the Court need not consider extrinsic evidence because
the contract is not ambiguous, the extrinsic evidence in the record is consistent with
Alliance’s interpretation of the Supply Agreement.33 Alliance contends Mr. Mays’
email to Lennox did not modify the Supply Agreement because (i) the email was
made in the context of the parties’ failed negotiation of a separate sales agreement
and (ii) Mr. Mays testified he was offering a temporary business accommodation.34
Alliance further asserts internal documents and the parties’ course of performance
demonstrate Alliance always has included all forms of compressors when calculating
Total Usage.35 Finally, Alliance maintains its interpretation is supported by the fact
that Trane consistently has included all compressor types in Total Usage when
meeting its own minimum purchase requirement.36
Lennox contends the Supply Agreement facially is ambiguous when the
definition of Total Usage is read within the Supply Agreement’s entire context, as
Delaware law requires.37 According to Lennox, the parenthetical “whether in scroll,
reciprocating or other form” qualifies the compressors included in Total Usage and
clarifies that Total Usage only includes compressor types manufactured by Alliance
in whatever form they may be.38 For support, Lennox cites the fact that the
33
Id. at 19.
34
Id. at 19-20.
35
Id. at 22-23.
36
Id. at 23.
37
Pl.’s Resp. at 15-16.
38
Id. at 16-17.
8
compressor types mentioned in the parenthetical match those Alliance manufactured
or contemplated manufacturing at the time the Supply Agreement was executed.39
In the alternative, Lennox argues a latent ambiguity exists in the Supply Agreement
arising from the fact that the parties did not address how to count compressor types
not manufactured by Alliance until nearly twenty years into the Supply Agreement’s
initial term.40 Further, Lennox contends Alliance’s interpretation commercially is
unreasonable because it would require Lennox to purchase compressors it cannot
use.41 Lennox asserts this result makes little sense, especially in light of the
agreement’s fifty-year term.42 Finally, Lennox argues extrinsic evidence supports
its interpretation.43 Lennox maintains Mays’s 2014 email reflected Alliance’s
interpretation of the Supply Agreement.44 Lennox implies Alliance either waived
its interpretation or acquiesced in Lennox’s interpretation by operating for several
years without counting toward Total Usage compressor types not manufactured by
Alliance.45 As to Alliance’s dealings with Trane, Lennox contends that evidence is
irrelevant because Trane was not a party to the Supply Agreement.46
39
Id. at 18.
40
Id. at 22.
41
Id. at 28.
42
Id. at 29.
43
Id.
44
Id. at 32.
45
Id. at 33.
46
Id. at 36. The Supply Agreement at issue in this case is a bilateral contract between Lennox
and Alliance. Trane and Alliance have a similar, but separate, agreement.
9
STANDARD OF REVIEW
Summary judgment may be granted when there is no genuine issue of material
fact and the moving party is entitled to judgment as a matter of law.47 A material
issue of fact exists if “a rational finder of fact could find some material fact would
favor the moving party in a determinative way[.]”48 The record must be viewed in
the light most favorable to the non-moving party.49 The moving party bears the
initial burden to demonstrate there is no genuine dispute as to any material fact and
that the movant is entitled to judgment as a matter of law.50 If the moving party
meets the initial burden, the burden shifts to the non-moving party to show that a
genuine issue of material fact is in dispute.51 “It is not enough for the opposing party
merely to assert the existence of such a disputed issue of fact[,]” and “[i]f the facts
permit reasonable persons to draw from them but one inference, the question is ripe
for summary judgment.”52
47
Super. Ct. Civ. R. 56(c).
48
Deloitte LLP v. Flanagan, 2009 WL 5200657, at *3 (Del. Ch. Dec. 29, 2009).
49
Gruwell v. Allstate Ins. Co., 988 A.2d 945, 947 (Del. Super. 2009).
50
Brzoska v. Olson, 668 A.2d 1355, 1364 (Del. 1995).
51
Id. (citing Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979)).
52
Id. (citing Wootten v. Kiger, 226 A.2d 238, 239 (Del. 1967)).
10
ANALYSIS
A. The Supply Agreement’s plain terms define Total Usage to include all
types of compressors Lennox purchases, not just scroll compressors.
The Supply Agreement unambiguously defines Total Usage to include all
compressor types, not merely the type Alliance manufactures. “When interpreting a
contract, the role of a court is to effectuate the parties’ intent.”53 In doing so, clear
and unambiguous language should be given its ordinary and usual meaning where
no special meaning is intended.54 A contract is not ambiguous simply because the
parties disagree as to the meaning of contractual language; rather, ambiguity exists
when the terms in question reasonably are susceptible of two different meanings or
interpretations.55
The Supply Agreement’s terms expressly require Lennox to purchase 56% of
its total compressor needs from Alliance. The Supply Agreement defines “Total
Usage” as “in any year, the total number of compressors (whether in scroll,
reciprocating, or other form) in the 1½ through 7 ton range.”56 The inclusion of the
parenthetical removes any doubt that the parties intended to include more than just
the compressor types Alliance manufactured. Specifically, the definition refers to
reciprocating compressors, even though it is undisputed that at the time the parties
53
Lorillard Tobacco Co. v. American Legacy Foundation, 903 A.2d 728, 739 (Del. 2006) (citing
Northwestern National Ins. Co. v. Esmark, Inc., 672 A.2d 41, 43 (Del. 1996)).
54
Id.; E.I. du Pont de Nemours & Co. v. Admiral Ins. Co., 711 A.2d 45, 59 (Del. Super. 1995).
55
Rhone-Poulenc v. American Motorists Ins., 616 A.2d 1192, 1196 (1992).
56
Def.’s Mot., Ex. 1, § 1.
11
entered into the Supply Agreement, and at all times since then, the only type of
compressors Alliance manufactured were scroll compressors.
This undisputed fact entirely undercuts Lennox’s assertion that the
parenthetical merely clarifies the types of compressors Alliance manufactures.
Lennox argues, confusingly, that the definition of Total Usage is ambiguous because
“the parenthetical qualifies ‘total number of compressors.’” Lennox goes on,
reasoning that by qualifying “total number of compressors,” the parenthetical
indicates Total Usage must mean something less than all types of compressors.
Lennox therefore concludes “the parenthetical clarifies that ‘Total Usage’ includes
compressor types manufactured by Alliance, whatever those may be.”57 But
Lennox’s reasoning elides the undisputed fact that the Alliance only ever
manufactured scroll compressors, meaning that the parenthetical’s reference to
“reciprocating or other form” cannot, based on the four corners of the agreement,
mean that Total Usage only refers to the compressors Alliance manufactures.58
Rather than giving meaning to the parenthetical, Lennox’s interpretation
would require the Court to disregard it altogether. Delaware courts avoid reading
contracts in a way that would render provisions illusory or meaningless or that would
57
Pl.’s Resp. at 17.
58
The agreement expressly defines “Products” as scroll compressors within a particular size
range. Def.’s Mot., Ex. 1 at 3. As explained below, Lennox relies extensively on extrinsic
evidence to argue that the parenthetical was intended to refer to the types of compressors the
parties at one point anticipated Alliance would manufacture. The Court, however, cannot
consider extrinsic evidence unless it first concludes the contract is ambiguous.
12
read language out of the agreement.59 In order to construe “the total number of
compressors [within the size range]” as referring only to the compressors Alliance
makes, the Court would have to ignore the parenthetical, which plainly includes
compressor types Alliance did not and does not manufacture. Lennox contends
Alliance’s interpretation would render the parenthetical superfluous because the
phrase “the total number of compressors” already means all compressors without
exclusion. But as discussed above, the parenthetical functions to remove doubt as
to whether all compressor types are included in the definition. The fact that the
parenthetical clarifies the “total number of compressors” language does not make it
superfluous or redundant.
Even if the parenthetical could be viewed as redundant of the reference to “the
total number of compressors,” that redundancy is preferable to ignoring the
parenthetical altogether. A construction that produces “some redundancy is
acceptable” if the construction gives effect to the contract language and discharges
the parties’ intent.60 Notwithstanding surplusage concerns, redundant interpretations
“are preferable” if construing undefined terms otherwise would contravene the
parties’ intent.61 Here, the parties included the parenthetical to remove any doubt
59
O’Brien v. Progressive Northern Ins. Co., 785 A.2d 281, 287 (Del. 2001); Seabreak
Homeowners Ass’n v. Gresser, 517 A.2d 263, 269 (Del. Ch. 1986).
60
In re IAC/InterActive Corp., 948 A.2d 471, 499 (Del. Ch. 2008) (internal quotation marks
omitted).
61
Id. at 498, n.109; See U.S. W., Inc. v. Time Warner Inc., 1996 WL 307445, at *15 (Del. Ch.
June 6, 1996) (“While redundancy is sought to be avoided in interpreting contracts, this principle
13
that “total number of compressors” referred to more than just the type of compressors
Alliance manufactured. In other words, the parties accepted some redundancy to
guarantee their contractual expectations would be fulfilled.62
In addition to requiring the Court to ignore the parenthetical, Lennox’s
argument that the contract facially is ambiguous depends on Lennox’s interpretation
of extrinsic evidence, including partnership agreements and drafts of the Supply
Agreement that predated the operative agreement. Specifically, Lennox notes the
compressor types mentioned in the parenthetical closely match the products Alliance
contemplated manufacturing in earlier drafts or versions of partnership
agreements.63 But it is axiomatic that the Court cannot consider extrinsic evidence
in order to “find” an ambiguity that is not apparent on the face of the contract.64 The
fact that earlier agreements may match the compressor types listed in the
parenthetical cannot override the clear language limiting Alliance’s manufacturing
to scroll compressors while stating that Total Usage would include all Lennox’s
compressor needs, evidencing an intent that all compressors be considered.
of construction does not go so far as to counsel the creation of contract meaning for which there
is little or no support in order to avoid redundancy.”).
62
See iBio, Inc. v. Fraunhofer USA, Inc., 2016 WL 4059257, at *11 (Del. Ch. July 29, 2016)
(finding a “somewhat redundant” provision not meaningless “to the extent” it gave the parties
“additional comfort”).
63
Pl.’s Resp. at 18.
64
Renco Group, Inc. v. MacAndrews AMG Holdings LLC, 2013 WL 3369318, at *5 (Del. Ch.
June 19, 2013) (citing Conner v. Phoenix Steel Corp., 249 A.2d 866, 868 (Del. 1969)).
14
Alliance’s interpretation is the only reasonable reading of the relevant
contractual language. The Supply Agreement plainly states that Lennox’s Target
Level is the annual percentage of Lennox’s total compressor usage during the year.
Alliance’s interpretation also is consistent with the definition’s reference to “the
production needs of the Business,” which expressly is defined to include Lennox’s
heat pump and air conditioning business in North and Central America. This
language clarifies the parties’ intent to consider Lennox’s complete business needs,
not just its business needs for scroll compressors.
Lennox seeks to blunt or blur this interpretation of the agreement’s plain
language by emphasizing that the parties’ relationship revolves around “Products,”
which Lennox asserts are defined as compressor types manufactured by Alliance.65
Lennox refers to several provisions in the Supply Agreement that discuss how
Products may be discontinued and will be affected by market demand. According
to Lennox, its interpretation of Total Usage is consistent with these provisions
because it would allow Lennox’s purchase obligation to adjust to changes in product
availability.66 Again, however, this fails to account for the specific language
65
This actually misreads the defined term “Products,” which is limited to “(i) 1 ½ through 7 ton
Scroll Compressors . . . and (ii) to the extent [Alliance] becomes capable of producing them on a
commercial basis, 1 through 6 ton Co-rotating Scroll Compressors . . . .” Def.’s Mot., Ex. 1 at 3.
In Exhibit 1 to the Supply Agreement, the parties listed the model numbers for the Products
Alliance expected to produce, and the parties acknowledged “it is likely that Exhibit 1 will be
amended from time to time as a result of technological, competitive and other developments.”
Id. at 3-4. The parties agreed to negotiate such amendments in good faith.
66
Pl.’s Resp. at 21.
15
defining Total Usage as the total number of compressors Lennox uses, regardless of
type.
Moreover, Alliance’s interpretation does not, as Lennox asserts, require
Lennox to purchase from Alliance compressors for which it has no use, nor does it
impose “draconian” restrictions. Under Section 4(b), Lennox’s minimum purchase
obligation is contingent on Alliance providing competitive Products, considering,
among other things, other compressors available to Lennox at the time.67 The parties
created this provision as a contractual solution to address the possibility that, over
the agreement’s fifty-year term, market changes could affect the competitiveness of
Alliance’s products. Lennox cannot assert the Supply Agreement’s unambiguous
terms are unreasonable over a fifty-year term when the parties clearly contemplated
the inevitable market shifts that have occurred over time and negotiated a provision
to address such issues. That Lennox now finds this provision insufficient or
undesirable is not a basis to rewrite other, unambiguous contractual terms to achieve
the result Lennox desires.
To summarize, Lennox does not have to purchase anything from Alliance
other than the compressors Alliance manufactures; but its minimum purchase
requirement is based on all types of compressors used in Lennox’s business. The
fact that the contract became less financially or competitively advantageous over
67
Def.’s Mot., Ex. 1, § 4(b).
16
time is not basis to find ambiguity or rewrite the contract. The parties were
sophisticated businesses with ready access to counsel when they negotiated the
agreement. It is not the Court’s function to rewrite contracts that one party regrets
in hindsight.68
B. There is no latent ambiguity in the definition of Total Usage.
Lennox does not offer any evidence or disputed facts from which a trier of
fact reasonably could conclude the Supply Agreement suffers from latent ambiguity.
Latent ambiguity exists where “the language employed is clear and intelligible and
suggests but a single meaning, but some extrinsic fact or extraneous evidence creates
a necessity for interpretation or a choice among two or more possible meanings . . .
.”69 Latent ambiguity rarely is found. The classic case exemplifying a latent
ambiguity involved two parties who contracted for shipment of cotton aboard a ship
named “Peerless,” not knowing two different ships existed with that name.70 A latent
ambiguity cannot overcome unambiguous contractual language, and the party
68
Allied Capital Corp. v. GC-Sun Holdings, L.P., 910 A.2d 1020, 1033 (Del. Ch. 2006)
(“[C]ourts will not rewrite contractual language covering particular topics just because one party
failed to extract as complete a range of protections as it, after the fact, claims to have desired
during the negotiation process.”); Cincinnati SMSA Ltd. P’ship v. Cincinnati Bell Cellular Sys.
Co., 708 A.2d 989, 992 (Del. 1998) (“Delaware observes the well-established general principle
that (absent grounds for reformation which are not present here) it is not the proper role of a
court to rewrite or supply omitted provisions to a written agreement.”).
69
Ambiguity, BLACK’S LAW DICTIONARY (rev. 4th ed. 1977); See also North American Philips
Corp. v. Aetna Cas. And Sur. Co., 1995 WL 628441 (Del. Super. Ct. Mar. 10, 1995).
70
Raffles v. Wichelhaus, 159 Eng. Rep. 375 (1864); See also Greene v. Hanover Ins. Co., 700
So.2d 1354, 1356 (Ala. 1997) (allowing parol evidence to show that the naming of “James Scott
Vance” in an insurance policy was a transposition of the person's first and middle names and was
intended to refer to “Scott James Vance.”).
17
seeking to show a latent ambiguity must establish that the words in question,
although apparently clear on their face, have two or more equally possible meanings
due to some external fact not known at the time of contracting.71
Lennox has not pointed to disputed facts that would allow a conclusion that
there are two or more equally possible meanings for “Total Usage.” Lennox urges
the ambiguity only became apparent when other types of compressors began to be
used widely. But this argument neither suggests that any words used in the contract
have more than one meaning nor permits an inference that the parties were not aware
of the likelihood that compressor technology would change over the course of a fifty-
year contract. To the contrary, Lennox concedes the parties anticipated changing
technology. The definition of “Products” acknowledges that the parties likely would
amend the definition at some time due to technological, competitive, or other
developments.72 The fact that a dispute did not arise until twenty years into the
Supply Agreement’s initial term is not evidence of latent ambiguity.
Lennox appears to assert that a latent ambiguity must exist because the parties
now disagree over the Supply Agreement’s meaning. Contractual terms are not
rendered ambiguous merely because parties to litigation now disagree on their
meaning, and the Court is not free to search for ambiguity where none exists.73
71
11 WILLISTON ON CONTRACTS § 33:43 (4th ed. 2003).
72
Def.’s Mot., Ex. 1, § 1.
73
Comet Systems, Inc. S’holders’ Agent v. MIVA, Inc., 980 A.2d 1024, 1030 (Del. Ch. 2008).
18
Lennox has provided no facts demonstrating a latent ambiguity in the Total Usage
definition, and the Court need not look beyond its plain, unambiguous meaning.
C. There are no material facts in dispute that would allow a reasonable jury
to find in Lennox’s favor as to waiver, acquiescence, modification, or
amendment.
i. Waiver & Acquiescence
As an affirmative defense to Alliance’s declaratory judgment claim, Lennox
argues Alliance (i) waived any claim that Lennox was required to calculate its Total
Usage based on all types of compressors it uses for its business, or (ii) acquiesced in
Lennox’s interpretation. Lennox, however, fails to offer evidence that a jury could
conclude clearly and convincingly demonstrates waiver or acquiescence.74
Delaware courts will find waiver upon a showing that: (i) there is a requirement or
condition capable of being waived, (ii) the waiving party knows of that requirement
or condition, and (3) the waiving party intends to waive that requirement or
condition.75 Waiver requires “knowledge of all material facts and an intent to waive,
together with a willingness to refrain from enforcing those contractual rights.”76
Because waiver is “redolent of forfeiture,” the standard for waiver is “quite
74
Lennox did not plead waiver or acquiescence as an affirmative defense, as is required for it not
to be waived. Nonetheless, Lennox’s defense fails on its merits.
75
Simon-Mills II, LLC v. Kan Am USA XVI Ltd. P’ship, 2017 WL 1191061, at *34 (Del.Ch. Mar.
30, 2017) (citing Amirsaleh v. Bd. of Trade City of N.Y., 27 A.3d 522, 530 (Del. 2011)).
76
AeroGlobal Capital Mgmt., LLC v. Cirrus Indus., Inc., 871 A.2d 428, 444 (Del. 2005) (citation
omitted).
19
exacting” and the facts demonstrating waiver must be “unequivocal.”77 Delaware
courts require intent to waive a contractual provision be evidenced by clear and
convincing evidence.78 Similarly, “[a]cquiescence arises where a complainant has
full knowledge of his rights and the material facts and (1) remains inactive for a
considerable time; (2) freely does what amounts to recognition of the complained of
act; or (3) acts in a manner inconsistent with the subsequent repudiation, which leads
the other party to believe the act has been approved.”79 Like waiver, the party must
(i) have full knowledge of his rights and all material facts; (ii) possess a meaningful
choice in determining how to act, and (iii) act voluntarily in a manner showing
unequivocal approval of the challenged conduct.80
Lennox’s waiver and acquiescence arguments fail for two reasons. First, the
Supply Agreement contains a valid and enforceable non-waiver clause. Section
12(c) provides “[t]he failure or delay by any party in asserting any right hereunder
77
Simon-Mills II, LLC, 2017 WL 1191061, at *34 (citing Amirsaleh v. Bd. of Trade City of N.Y.,
27 A.3d 522, 529 (Del. 2011)); See also Kallop v. McAllister, 678 A.2d 526, 532 (Del. 1996)
(“Waiver, however, requires more than mere inaction. To substantiate his waiver defense, [the
defendant] needed to show that [the plaintiff] intentionally relinquished his right to rely on the
Letter Agreement.”).
78
Specialty Dx Holdings, LLC v. Laboratory Corporation of America Holdings, 2020 WL
5088077, at *9 (Del. Super. Jan. 31, 2020) (citing Ballenger v. Applied Digital Solutions, Inc.,
2002 WL 749162, at *8 (Del. Ch. Apr. 24, 2002)); See also Eureka VII LLC v. Niagara Falls
Holdings LLC, 899 A.2d 95, 109-10 (Del. Ch. 2006) (citing AeroGlobal Capital Mgmt., 871
A.2d at 444).
79
Bakerman v. Sidney Frank Importing Co., Inc., 2006 WL 3927242, at *17 (Del. Ch. Oct.10,
2006).
80
In re Celera Corp. S’holder Litig., 2012 WL 1020471, at *9 (Del. Ch. Mar. 23, 2012).
20
shall not preclude such party from subsequently asserting such right.”81 “Non-
waiver clauses serve an important purpose in contract law by ensuring that a party
to a contract is given an opportunity to make a thoughtful and informed decision
about whether or not to enforce a particular contract right.”82 Such clauses provide
a contracting party assurance that its failure to require the other party’s strict
adherence to a contract term will not result in a complete and unintended loss of its
contractual rights.83 The Supply Agreement’s non-waiver clause broadly and
unambiguously preserves either party’s contractual rights despite a failure or delay
in asserting these rights. Alliance’s actions therefore did not waive its right to
enforce the Supply Agreement’s plain language including all compressor types in
the definition of Trade Usage.
Second, Lennox hypothesizes that Alliance should have known Lennox was
excluding all non-scroll compressors from its calculation because Alliance is able to
track Lennox’s purchase volumes and could have audited Lennox’s Volume
Statements.84 But Alliance offers evidence that, when it tracked Lennox’s purchase
volumes, it did so with a methodology that including all compressor forms.85 Given
Lennox’s heightened evidentiary burden and the conflicting evidence on this point,
81
Def.’s Mot., Ex. 1, § 12(c).
82
Viking Pump, Inc. v. Liberty Mut. Ins. Co., 2007 WL 1207107, at *27 (Del. Ch. Apr. 2, 2007).
83
Rehoboth Mall Ltd. P’ship v. NPC Int’l, Inc., 953 A.2d 702, 704 (Del. 2008) (citing Viking
Pump, Inc., 2007 WL 1207107, at *26).
84
Pl.’s Resp. at 33.
85
Def.’s Mot. at 22.
21
Lennox’s conjecture that Alliance could have discovered the exclusion is insufficient
to show Alliance intentionally waived its contractual rights or acquiesced in
Lennox’s interpretation of the Supply Agreement.
ii. Modification
Lastly, Lennox asserts the parties modified the Supply Agreement through
their course of performance.86 At the outset, it is notable that the Supply Agreement
expressly prohibits oral modifications or amendments. Section 12(e) of the Supply
Agreement provides that “[t]his Agreement may be hereafter amended only by a
written document duly executed by each party hereto.”87 Even with such a
contractual clause, however, the parties’ course of performance may modify any
term inconsistent with the course of performance.88 Course of performance is a
sequence of conduct where: (i) the parties’ agreement involves repeated occasions
for performance by one party, and (ii) the other party knowingly accepts the
performance or acquiesces in it without objection.89 A party claiming modification
faces a high evidentiary burden and must prove the terms of the modification are
definite, certain, and intentional; indefinite expressions and mere negotiations for a
86
Lennox did not plead modification as an affirmative defense, as is required to preserve the
defense. Nonetheless, Lennox’s modification defense fails on its merits.
87
Def.’s Mot., Ex. 1, § 12(e).
88
6 Del. C. § 1-303(f); See also Lowe v. Bennett, 1994 WL 750378, at *3 (Del. Super. Dec. 29,
1994).
89
6 Del. C. § 1-303(a).
22
variance cannot constitute a modification.90 Accordingly, although parties can
modify a contract through the course of performance, the conduct relied upon must
be unequivocal in character.91
The evidence Lennox offers is insufficient to meet that standard. Once a
contract is finalized, it cannot be modified without consideration and both parties’
consent.92 Lennox has not offered any evidence that the parties exchanged
consideration for the purported modification. Drawing inferences in Lennox’s favor,
there is evidence that, while in the course of negotiating a new contract regarding
the sale of other compressors, the parties discussed modifying the minimum
purchase obligation. It is undisputed, however, that the parties’ negotiations never
came to fruition, and those negotiations therefore cannot constitute consideration or
unequivocal conduct evincing modification.
Further, the facts Lennox offers to show an intent to modify would not allow
a reasonable jury to find in Lennox’s favor. Mr. Mays’s email confirming that
variable speed compressors would not count toward the minimum purchase
obligation was made in the context of negotiations regarding a separate sales
agreement unrelated to the Supply Agreement.93 Mr. Zellmer testified that
90
17A C.J.S. Contracts § 565.
91
Id. at § 564.
92
De Cecchis v. Evers, 54 Del. 99, 101 (Del. 1961).
93
See Def.’s Mot., Ex. 7 at 1-3.
23
Alliance’s offer to “look the other way” regarding variable speed compressors was
a temporary business accommodation lasting only until Alliance could bring its line
of variable speed compressors to the market.94 At best, Lennox’s evidence indicates
the parties negotiated for a temporary variance during discussions regarding a
separate supply agreement. None of this evidence demonstrates definite, certain,
and intentional modification sufficient to satisfy Lennox’s heightened evidentiary
burden. Accordingly, summary judgment is appropriate.
CONCLUSION
For the reasons set forth above, the Court grants summary judgment in favor
of Alliance as to Count I of Lennox’s complaint and Count III of Alliance’s
counterclaim.
94
Zellmer Dep. at 170:19-171:1-2.
24