Eden Foods Inc v. American Soy Products Inc

STATE OF MICHIGAN
COURT OF APPEALS
EDEN FOODS, INC., UNPUBLISHED
January 22, 2015
Plaintiff/Counter defendant-
Appellee,
v No. 318337
Washtenaw Circuit Court
AMERICAN SOY PRODUCTS, INC., LC No. 12-001219-CK
Defendant/Counter plaintiff-
Appellant.
Before: MURRAY, P.J., and SAAD and K. F. KELLY, JJ.
PER CURIAM.
In this breach of contract action, defendant/counter plaintiff, American Soy Products, Inc
(ASP), appeals by leave granted1 an order denying its motion for summary disposition,
dismissing its counterclaims and granting summary disposition in favor of Eden Foods, Inc.
(Eden). Finding no errors warranting reversal, we affirm.
I. BASIC FACTS
ASP was formed in 1985 pursuant to a Joint Venture Agreement (JVA) by and among
Eden and four Japanese companies for the express purpose of providing Eden a unique brand of
soymilk called Edensoy. Under the agreement, Eden was to be the sole sales agent of “Products
A” in the United States and Canada. The parties acted in accordance with the JVA for 12 years
until February 5, 1997, when they entered into the Amended and Restated Joint Venture
Agreement (AJV).
The purpose of the AJV was to “broaden the business purpose of [ASP] to extend to the
manufacture and sale of products other than soybean milk and related products” and to “restate
the Joint Venture Agreement in its entirety to reflect the current understanding of the parties as to
the future operation and management of [ASP].” Once again, Eden was appointed sole sales
1
Eden Foods Inc v American Soy Products Inc, unpublished order of the Court of Appeals,
entered October 30, 2013 (Docket No. 318337).
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agent of Products A in the United States and Canada. Two months later, on April 9, 1997, ASP
and Eden entered into a Sole Sales Agency and Requirements Agreement (SSARA), which
provided that “[ASP] and Eden are entering into this Agreement in accordance with Article 22 of
the New JV Agreement and in order to confirm, clarify and define the business relationship
between the parties for the term hereof.” Regarding the length of the SSARA’s term, section
10.1 provided that “Subject to Paragraphs 10.2 and 10.3 below, this Agreement shall be effective
as of the date hereof and shall expire ten years after the Phase 1 Full Commercial Production
Date (the “Initial term”). The latter date was September 26, 1998, which made the expiration
date for the SSARA September 26, 2008. There were a variety of ways that the SSARA could
be renewed. For purposes of this appeal, section 10.2(d) provided that the agreement was
renewable only by mutual agreement if sales of Products A are less than 60% of the Eden
Allocation during the last five years of the initial term, or of any renewal term.
According to ASP, because market prices had gone up over the years and Eden had
reduced its sales volume, the price at which it had been selling the product to Eden was
“financially impracticable,” yet Eden refused to discuss any price adjustments. At ASP’s annual
shareholders and board of directors meeting in January of 2008, at which Eden’s president
Michael Potter was present, Hiroyasu Iwatsuki, ASP’s CEO and a member of ASP’s board of
directors, told the board that the SSARA (referenced in the meeting minutes as “Eden Foods
Minimum Purchase Agreement”) expired at the end of September 2008. On April 11, 2008,
Iwatsuki sent Potter a letter:
The Sole Sales Agency and Requirement Agreement (the “Agreement”)
dated April 9, 1997 between American Soy Products, Inc. (“ASP”) and Eden
Foods, Inc. (“Eden”) is approaching the end of the term, i.e., September 26, 2008
as discussed from time to time at the board meetings of ASP. This letter serves as
notice of expiration of the Agreement.
ASP has made substantial investments in the manufacturing facilities.
ASP also has experienced a severe market environment facing soymilk and
soymilk related products (“product-A”) during these years. We know ASP must
gather every wisdom together to tide over the current difficult position. We
should need the flexible and more diversified operation policy and strategy
including production policy, marketing policy, terms of deals with customers,
minimum purchase requirement, etc. We should review the basic terms and
conditions of the Joint Venture Agreement dated February 5, 1997 rather than
side issues.
In this circumstance, if Eden desires to maintain a continuous business
arrangement with ASP on Product A, we would like to discuss terms and
conditions of a new agreement with you in detail. Once the new agreement is
reached we will make every effort to obtain the approval therefor [sic] from the
board of ASP prior to the end of the term of the Agreement.
On that same date, Potter signed the letter acknowledging that he had received it.
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The notes from ASP’s subsequent September 2008 Special Board of Directors Meeting
indicate:
Mr. Iwatsuki stated that he mentioned in previous board of directors meetings, the
Sole Sales Agency and Requirement Agreement made and entered into on April
9, 1997 expires on September 26, 2008 and ASP does not intend to renew the
agreement but want [sic] to have some agreement such as simply a supply
agreement with Eden because Eden Foods is a partner of this joint venture
company and one of the most important customers for ASP. He stated that he
wants to study about this together with Eden by next board of directors meeting.
Mr. Mike Potter, Chairman & President of Eden Foods, Inc., stated that the
business circumstances now have changed much from that of the time at the
existing agreement was made 10 years ago. He agreed with Mr. Iwatsuki’s idea
and stated that the new agreement should be simple and want to make it meet the
current business circumstances. The board agreed.
Nonetheless, ASP continued producing and providing Edensoy to Eden for several more
years.
This lawsuit began when ASP allegedly delivered defective goods—leaking containers—
to Eden in October 2012, prompting Eden to withhold payment to ASP on open invoices pending
quantification of the damages caused by ASP’s breach. ASP then terminated supply to Eden,
asserting that it was under no obligation to supply Eden with soymilk.
On November 14, 2012, Eden filed suit, seeking injunctive relief and specific
performance. Eden alleged a breach of contract, and specifically referred to the contract as the
SSARA agreement. Eden asked the court for a temporary restraining order requiring ASP to
continue producing Edensoy and providing it to Eden. ASP argued that the SSARA had expired
and, therefore, there was no obligation on its part to sell soymilk to Eden. The trial court entered
the preliminary injunction for the pendency of the suit and ordered that “the parties continue to
perform in accordance with past practice, with forecasts, production schedules, purchase orders,
invoices, and payments.” On ASP’s application for leave to appeal the injunction, this Court
vacated the trial court’s order in lieu of granting the application because Eden failed to establish
irreparable harm. Eden Foods, Inc v American Soy Products, Inc, unpublished order of the Court
of Appeals, entered May 2, 2013 (Docket No. 314730).2
Meanwhile, ASP filed counterclaims against Eden. ASP alleged that: (1) Eden failed to
pay for the soymilk that ASP had provided; (2) Eden breached a March 1, 2012 settlement
agreement by failing to implement a plan for promoting the product; (3) Eden breached a 2009
settlement agreement by setting off amounts to ASP; (4) Eden breached an agreement it had with
ASP wherein both parties agreed to each pay a portion of the legal fees associated with a 2012
2
Our Supreme Court denied leave to appeal on September 6, 2013. Eden Foods, Inc v Am Soy
Products, Inc, 495 Mich 856; 836 NW2d 174 (2013).
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loan; and (5) Eden breached an oral agreement with ASP in which Eden agreed to pay for raw
materials that ASP purchased for use in producing Edensoy.
Eden filed an amended complaint on January 2, 2013, specifically incorporating breaches
of the parties’ AJV.
The parties filed competing motions for summary disposition. Following a hearing, the
trial court issued a written opinion and order granting Eden’s motion for summary disposition
and denying ASP’s motion for summary disposition. In sum, the trial court ruled as follows:
• The [AJV] imposes an obligation upon ASP to supply Edensoy to Eden;
• The Sole Sales Agency and Requirements Agreement (SSAR[A]) is
presently in effect;
• The [AJV] has a clear termination provision and is not a perpetual
contract;
• The Eden Allocation is the amount of ASP’s production capacity for all
products that would be devoted to producing soymilk for Eden; and the
supply relationship does not end if the Eden Allocation was not met;
• The escrowing of the money damages at issue ($177,000.00) was in
compliance with the [AJV];
• ASP provided defective leaking cartons of Edensoy to Eden in September
and October 2012 not in compliance with the [AJV] and SSAR[A];
• The Edensoy affected by the defective, leaking cartons is known to the
parties and reflected in purchase orders, invoices, and credits;
• ASP stopped filling Eden’s orders for Edensoy and ceasing production of
Edensoy are breaches of its contracts with Eden;
• Eden has suffered damages as a result of ASP’s breach of contract in an
amount to be determined at trial.
ASP now appeals by leave granted.
II. ANALYSIS
On appeal, ASP argues that the trial court erred in granting Eden summary disposition,
denying ASP’s motion for summary disposition, and dismissing ASP’s counterclaims. We
disagree.
Both a trial court’s ruling on a motion for summary disposition as well as the proper
interpretation of a contract are questions of law that are reviewed de novo on appeal. Klapp v
United Ins Group Agency, Inc, 468 Mich 459, 463; 663 NW2d 447 (2003).
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A motion under MCR 2.116(C)(10) tests the factual sufficiency of the complaint.
In evaluating a motion for summary disposition brought under this subsection, a
trial court considers affidavits, pleadings, depositions, admissions, and other
evidence submitted by the parties, MCR 2.116(G)(5), in the light most favorable
to the party opposing the motion. Where the proffered evidence fails to establish
a genuine issue regarding any material fact, the moving party is entitled to
judgment as a matter of law. [Maiden v Rozwood, 461 Mich 109, 120; 597 NW2d
817 (1999).]
Where, as here, there is no claim of ambiguity, the interpretation of a contract’s provisions is
purely a question of law. Holmes v Holmes, 281 Mich App 575, 587; 760 NW2d 300 (2008).
The original JVA provided that “The New Company [ASP] shall appoint EDEN to be the
sole sales agent of the Products in the U.S.A. and Canada.” Although the JVA indicated that the
parties were going to enter into a contemporaneous sole sales agency agreement, the parties
never executed one. In the absence of a sole sales agency agreement, the parties nevertheless
acted in accordance with the exclusive sales provision of the JVA until it was amended and
restated in a February 5, 1997 AJV. As previously stated, the purpose of the AJV was to
“broaden the business purpose of [ASP] to extend to the manufacture and sale of products other
than soy bean milk and related products” and to “restate the Joint Venture Agreement in its
entirety to reflect the current understanding of the parties as to the future operation and
management of [ASP].” (Emphasis added.) Thus, the AJV confirmed the parties’ relationship
and simply expanded ASP’s business operations for products other than soy milk.
Under the AJV, ASP’s stated business purpose consisted of manufacturing Products A
(soybean milk and related products) as well as Products B (other beverages, including fruit juices
and other foods not included in Products A). ASP was authorized to enter into “co-packing
agreements” with other purchasers. However, under both the old and new joint venture
agreements, Eden was the sole distributor and sole sales agent of ASP’s soy milk and related
products.
Under article 20 of the new agreement, ASP “shall appoint Eden to be the sole sales
agent of Products A in the U.S.A. and Canada.” Article 22 of the AJV further provides:
For the purpose of carrying out the project described in this Agreement,
Eden agrees to do the following:
(a) Eden agrees to enter into and execute a “Sole Sales Agency
Agreement” attached hereto as Exhibit G with the Company relative to the sale of
Products A. Eden also agrees to purchase all its requirements of Product A for
sale in the U.S.A. and Canada from [ASP] through the term of the joint venture,
provided that (i) [ASP] is able to meet such requirements on an ongoing basis (or
in case of shortage of capacity, develops and implements a mutually agreeable
plan to provide such capacity) and (ii) the quality, price and terms of Products A
manufactured by [ASP] continue to be competitive and consistent with the
standards which have heretofore been established over the course of the joint
venture.
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(b) Eden agrees to render, within its means, a complete marketing service
in connection with the sale of Products A in the U.S.A. and Canada. [Emphasis
added.]
There is no dispute that the AJV is still in effect.
The trial court concluded that the original AJV “creates a supply and requirements
relationship between Eden and ASP.” The trial court found that the AJV created “an exclusive
dealing contract that obligates ASP to use its best efforts to supply soymilk to Eden” as well as
“use its best efforts to maintain the high quality standards of the products to be manufactured by
ASP consistent with the high standards which have heretofore been established over the course
of the joint venture.” The trial court concluded that ASP delivering defective product and then
subsequently refusing to supply Eden with soymilk constituted a breach of the AJV and that
ASP’s obligations were not relieved when the SSARA allegedly expired. Importantly, the trial
court noted that “[t]he SSAR[A] does not purport to supersede the stated purpose of the [AJV],
but only to confirm, clarify, and define the business relationship between the parties for the term
hereof. The supply and requirements relationship is established in the [AJV], and the particulars
of the relationship are implemented as set forth in the SSAR[A] during the term of the
SSAR[A].” The trial court concluded that ASP was not relieved of its obligation to use its best
efforts to supply Eden with its soymilk requirements under the AJV.
We agree. The AJV created a supply and requirements relationship between Eden and
ASP. A requirements contract is one in which “the quantity term is not fixed at the time of
contracting [and t]he parties agree that the quantity will be the buyer's needs or requirements of a
specific commodity or service” over the life of the contract. Corbin, Contracts (rev ed), § 6.5, p
240. The terms of the AJV could not be more clear – Eden agreed to purchase its soy milk
requirements from ASP and ASP, in turn, agreed to supply Eden with Eden’s soy milk
requirements. Under a requirements contract, the parties are expected to act in good faith and
according to commercial standards of fair dealing in the trade. Gen Motors Corp v Paramount
Metal Products Co, 90 F Supp 2d 861, 873 (ED Mich, 2000). A party may be subject to liability
for breach of contract if it acts in bad faith or seeks to unilaterally terminate purchase orders. Id.
“A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods
concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to
supply the goods and by the buyer to use best efforts to promote their sale.” MCL 440.2306(2).
Contrary to ASP’s assertions, the AJV is not so indefinite as to render it unenforceable.
Comment 2 to MCL 440.2306 provides “[u]nder this Article, a contract for output or
requirements is not too indefinite since it is held to mean the actual good faith output or
requirements of the particular party.” Moreover, “[e]ven though one or more terms are left open
a contract for sale does not fail for indefiniteness if the parties have intended to make a contract
and there is a reasonably certain basis for giving an appropriate remedy.” MCL 440.2204(3).
Therefore, standing alone, the AJV created a contract between the parties and, by
delivering defective goods and then refusing to supply Eden with its soy milk requirements, ASP
clearly breached the AJV. Again, there is no dispute that the AJV remains in effect. ASP does
not dispute that certain of its shipments were defective. Eden was, therefore, authorized to offset
the purchase price pursuant to MCL 440.2717, which provides: “The buyer on notifying the
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seller of his intention to do so may deduct all or any part of the damages resulting from any
breach of the contract from any part of the price still due under the same contract.”
ASP argues that, in entering into the SSARA, the parties effectively “otherwise agreed”
to modify the AJV, as contemplated under MCL 440.2306(2) and, therefore, only the SSARA,
and not the AJV, was the only contract at issue. Given the relationship between the parties, this
argument is disingenuous. After all, the parties have been acting in accordance with one form or
another of a joint venture agreement since 1985, with or without a separate sole sales agreement.
Additionally, the SSARA indicated that “[ASP] and Eden are entering into this Agreement in
accordance with Article 22 of the New JV Agreement and in order to confirm, clarify and define
the business relationship between the parties for the term hereof.” There is absolutely no
indication that the SSARA supersedes the AJV.
Moreover, although ASP claims that Eden’s president, Michael Potter, admitted that the
AJV did not require a supply of milk, the testimony to which ASP refers is incomplete. Potter
testified that he never formally objected to Iwatsuki’s letter or the board minutes regarding the
expiration of the SSARA because “it was my assumption that the agreement was continuing
beyond the dates associated with them.” He testified that he believed ASP had a duty to make its
best efforts to continue to supply Eden with its requirements. Therefore, contrary to ASP’s
contention, Potter’s testimony does not support its position.
The trial court also properly rejected ASP’s contention that the AJV was a “perpetual
agreement” and, therefore, terminable at will. “[W]here the parties have not agreed upon the
term, duration, or manner of termination of such an agreement it is generally deemed to be
terminable at the will of either party because they have not agreed otherwise.” Lichnovsky v
Ziebart Intern Corp, 414 Mich 228, 240-41; 324 NW2d 732 (1982). This is true, not because
“the word ‘indefinitely’ appears in the agreement or because the term or duration of such an
agreement can properly be characterized as indefinite but because there is no agreement
concerning term, duration, or manner of termination, and it is generally thought to be reasonable
in such a case to infer that the parties intend that the agreement be terminable at the will of either
party.” Id. at 242. In contrast, “[a]n agreement which the parties have agreed is terminable only
for cause, and which is thus by their agreement to endure until so terminated, is legally
enforceable until terminated on that ground.” Id. at 241. In that situation, “[a]lthough the
agreement is, in one sense, ‘indefinite’ as to term or duration, it is not the kind of agreement with
an ‘indefinite term’ subject to the rule of construction that such an agreement is terminable at
will.” Id. at 243. Article 10 of the AJV entitled “Important Matters” provides that “all
resolutions relating to important matters as stipulated below shall be adopted by more than two-
thirds of the votes of the shareholders present in order to be effective,” including “[a]ny change
of business purpose.” Moreover, even if we were to conclude that the AJV was a perpetual
contract, ASP never gave notice of its intention to terminate the AJV. At most, ASP advised that
the SSARA had expired and it was seeking to redefine the parties’ relationship with a new
agreement. Pending that new agreement, however, ASP and Eden acted in a manner that was
consistent with “business as usual.”
In any event, it appears that the SSARA continued to be in effect. The trial court found
that, contrary to ASP’s suggestion, “Eden did not promise to purchase the Eden Allocation.” In
fact, the minimum quantities referenced in the SSARA were for Eden’s protection. In the event
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Eden’s annual requirements were less than the allocation, ASP was free to reallocate its
production capacity to other products. But the trial court concluded that “[n]o reasonable
interpretation of the SSAR[A] supports a finding that the supply relationship would end if the
Eden Allocation was not met. The provision expressly gives the right to reallocate only the
portion of the Eden Allocation that is not needed by Eden.” The trial court also looked to the
fact that ASP continued to pay Eden a two percent commission under SSARA. That, in
conjunction with the fact that ASP never alleged expiration of the agreement during the parties’
earlier settlements in 2009 and 2012, made “ASP’s actions since September 2008 . . .incongruent
with its claims in this lawsuit.” The trial court held:
The only logical conclusion this Court can draw is that the parties renewed the
SSAR[A] by mutual agreement by continuing to do “business as usual.” Either
the parties determined, through their course of dealing, to ignore the Eden
Allocation provision, or the parties manifested their mutual assent to continue the
SSAR[A]. Either way, as this Court explained at the Injunction hearing, “the
agreement remains in full force and effect pursuant to the automatic renewal that
was occurring between the parties.”
The trial court’s findings and conclusions are well founded. Regarding the length of the
SSARA’s term, section 10.1 provided that “Subject to Paragraphs 10.2 and 10.3 below, this
Agreement shall be effective as of the date hereof and shall expire ten years after the Phase 1
Full Commercial Production Date (the “Initial term”). The latter date was September 26, 1998,
which made the expiration date September 26, 2008. Section 10.2 of the SSARA dealt with
renewals. Specifically:
10.2 Renewals.
It is the mutual intention of the parties that Eden shall remain the sole
sales agent and exclusive distributor of Products A indefinitely, unless Eden’s
sales and marketing efforts produce materially deficient sales of Products A.
Accordingly, the following provisions are intended to provide assurances to Eden
that its exclusive rights will continue, subject to satisfactory performance, and to
provide assurances to [ASP] that the function of sales and marketing of Products
A will be properly and successfully performed. All sales tests set forth below are
based on product having been available to Eden substantially in accordance with
agreed-upon production schedules pursuant to Section 6, and shall be adjusted if
product unavailability is experienced.
(a) In the event that during the last five years of the Initial Term, sales of
Products A shall have averaged at least ninety (90%) percent of the Eden
Allocation established in Section 2.2, then this Agreement shall automatically be
renewed for an additional five-year term on the same terms and conditions
including Eden’s continuing to serve as exclusive distributor and sole sales agent.
(“First Renewal Term”).
(b) In the event that during the entire First Renewal Term, sales of
Products A shall have averaged at least ninety [percent] (90%) of the Eden
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Allocation established in Section 2.2, then this Agreement shall automatically be
renewed for an additional five-year term on the same terms and conditions
including Eden’s continuing to serve as exclusive distributor and sole sales agent
(“Second Renewal Term”). As long as sales of Products A shall have averaged at
least ninety (90%) percent of the Eden Allocation, the term of this agreement shall
automatically renew for successive five- year periods on the same terms and
conditions including Eden’s continuing to serve as exclusive distributor and sole
sales agent.
(c) In the event that during the last five years of the Initial Term, sales of
Products A shall have averaged less than ninety percent (90%) but more than
sixty percent (60%) of the Eden Allocation established in Section 2.2, then the
term of this Agreement shall at Eden’s option be renewed for an additional five-
year period on the same terms and conditions, except that Eden’s rights as
exclusive distributor and sales agent shall be changed as follows:
The section sets forth a schedule reducing Eden’s rights of exclusivity to ASP’s production
capacity in a manner correlating to the amount of shortfall of sales under 90 percent. Under
section 10.2(d), the agreement was renewable only by mutual agreement if sales of Products A
are less than 60% of the Eden Allocation during the last five years of the initial term, or of any
renewal term. While the parties spend a great deal of time discussing the Eden Allocation and
whether it was met over the years, it is clear that, through their behavior, the parties decided to
disregard that requirement. That the parties intended that the SSARA continue is buttressed by
the fact that ASP never raised the issue during the parties’ 2009 and 2012 disputes. And, even
more telling is the fact that ASP continued to pay Eden commissions. While the SSARA clearly
contemplated that Eden would be the sole sales agent, article 7 of the SSARA provided that, in
the event ASP sold Products A to “co-pack customers” that Eden would “be compensated on the
basis of a mutually agreed commission of not less than two percent (2%) of [ASP’s] net sales of
Products A to that customer.” Such behavior is inconsistent with non-renewal.
The trial court also properly dismissed ASP’s counterclaims, which border on frivolous.
At the hearing on the competing motions for summary disposition, ASP admitted that it shipped
defective goods – “we acknowledge there was difficulty with these products and . . . I think we
probably would acknowledge that there is a damage claim that needs to be addressed.” As
previously stated, Eden properly offset the cost of the defective goods under MCL 440.2717.
And, contrary to ASP’s contention, the parties’ 2009 settlement agreement did not prohibit Eden
from setting off costs for future defective products; the agreement only limited further
deductions for the goods giving rise to the 2009 agreement.
None of ASP’s remaining counterclaims are supported with documentary evidence.
While ASP complains that Eden failed to promote its product, it set forth no evidence that a
breach occurred. Nor was there a contract providing that Eden would pay a portion of the legal
fees associated with a 2012 closing. While ASP’s president claimed that the parties agreed
during a board meeting that Eden would pay its own legal fees going forward, there was no
mention of the agreement in the board’s minutes or resolutions. The trial court found that
“[m]ere discussions and negotiation cannot be a substitute for the formal requirements of a
contract.” Finally, no contract existed obligating Eden to pay for raw materials purchased by
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ASP. In its brief on appeal, ASP writes that “Eden has never offered a shred of actual evidence
showing either (1) that the agreements did not exist, or (2) that Eden was free to ignore their
terms.” However, ASP, as the one claiming the breach, has the burden of proof. “A plaintiff's
burden of proof encompasses two separate concepts: (1) the burden of persuasion, and (2) the
burden of going forward with the evidence. While the former does not shift during the course of
a trial, the latter may shift to the opposing party.” Triple E Produce Corp v Mastronardi
Produce, Ltd, 209 Mich App 165, 175-76; 530 NW2d 772 (1995) (internal quotation marks and
citations omitted). However, “[t]he burden of persuasion never shifts during trial from the
plaintiff to the defendant. Only the burden of going forward may shift from one side to the other
at various times during the trial as evidence is introduced by the respective parties.” Michigan
Tractor & Mach Co v Elsey, 216 Mich App 94, 102; 549 NW2d 27 (1996) (internal citation
omitted). ASP was required to show that a contract existed and that it was breached; Eden was
not required to prove the nonexistence of said contracts.
Affirmed. As the prevailing party, Eden may tax costs. MCR 7.219.
/s/ Christopher M. Murray
/s/ Henry William Saad
/s/ Kirsten Frank Kelly
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