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Hyperlogistics Group, Inc. v. Kraton Polymers U.S. LLC

July 11, 2006

HYPERLOGISTICS GROUP, INC., PLAINTIFF,
v.
KRATON POLYMERS U.S. LLC, DEFENDANT.



The opinion of the court was delivered by: Judge Algenon L. Marbley

Magistrate Judge King

OPINION AND ORDER

I. INTRODUCTION

This matter is before the Court on the parties' cross-motions for summary judgment. On January 6, 2006, Plaintiff, Hyperlogistics Group, Inc. ("Hyperlogistics" or "Plaintiff"), moved this Court for partial summary judgment on the issue of liability with respect to Counts One and Two in their complaint. On February 16, 2006, Defendant, Kraton Polymers U.S., LLC ("Kraton" or "Defendant"), moved this Court for summary judgment on all of Plaintiff's claims and its own counterclaim. For the reasons stated herein, this Court GRANTS in part and DENIES in partPlaintiff's Motion for Partial Summary Judgment. Additionally, this Court GRANTS in part and DENIES in part Defendant's Motion for Summary Judgment.

II. BACKGROUND

A. Facts

On July 1, 1991, Shell Chemical Company ("Shell") entered into a Warehousing Agreement (the "Agreement") with Transdistribution/WV, Inc. ("Transdistribution") for receipt, storage, handling, and shipment of Shell's polymer products at Transdistribution's warehouse facility located on Rosemar Road in Vienna, West Virginia. Schedule A to the Agreement ("Schedule A") sets forth the various fees Transdistribution charged Shell for handling, labor, and storage. Schedule B to the Agreement ("Schedule B") sets forth a list of service standards the Agreement required Transdistribution to satisfy.*fn1 Under Article 2 of the Agreement, Transdistribution agreed to provide "the necessary equipment, facilities, space, manpower, administration/office support and services according to but not limited to the attached Schedule B, . . . for receiving, transferring, and storing products consigned by Shell to the care of [Transdistribution] and for performing quality inspections and shipping the products from storage when and as specified by Shell."

The Agreement was effective for a term of ten years, beginning on the signing date,*fn2 and beyond the initial ten-year term, it gave Shell the option of obtaining one-year extensions.*fn3 In 2000, Shell assigned its interests under the Agreement to an entity that later was renamed Kraton. Transdistibution later transferred its interests under the Agreement to Hyperlogistics.*fn4

Accordingly, for clarity, the Court hereafter will regard the parties to the Agreement as Plaintiff and Defendant.

Pursuant to Article 15 of the Agreement, West Virginia state law governs any disputes arising under the Agreement.

1. Cancellation Procedures Under the Agreement

Article 3(C) of the Agreement provides the procedure for terminating Plaintiff's handling obligations (the "handling services component"), as distinguished from Plaintiff's warehousing obligations (the "warehouse services component"), under the Agreement. It provides:

The Handling provision of this Agreement may be cancelled during the term of this contract by [Defendant] when service standards, as outlined in the attached Schedule B, are not being met. The cancellation procedures shall be:

1. Written notice listing specific service standards not being met shall be delivered by [Defendant] to [Plaintiff] according to paragraph fourteen (14), "Notices."*fn5

2. On receipt of notice listing service standards not being met, [Plaintiff] has sixty (60) days to issue and implement a corrective action plan. If after sixty (60) days the service standards are not corrected, [Defendant] may give to [Plaintiff] a three (3) month written notice of intent to terminate the Handling provisions of this Agreement. The termination shall take effect three (3) months after receipt of the notice. During this three (3) month period, [Plaintiff] will continue to provide normal services as outlined in this contract.

3. This [Agreement] shall become a rental agreement between [Defendant] and [Plaintiff], when the Handling provision of this Agreement has been cancelled. . . . [Defendant] shall pay [Plaintiff] an agreed to monthly rental fee not to exceed $60,000 per month.

4. Other fees and terms shall be negotiated during the three months following the receipt by [Plaintiff] of the written notice of intent to terminate the Handling provision.

Additionally, Article 7(C) of the Agreement provides the following:

For the purposes of determining the monthly storage charge, [Plaintiff's] monthly storage guarantee will not apply during any period after written notice of intent to cancel this Agreement under Article 3 (Term of Agreement), Paragraph C, is received by either party, the charge will be determined by actual net product inventoried thereby eliminating the minimum monthly storage charge of $60,000 derived by applying the Schedule A storage rate to 30 million net pounds of product.

2. Responsibility for Loss, Damage, or Contamination of Defendant's Products Under the Agreement

The Agreement further provides that Plaintiff shall be held financially liable for certain damages to Defendant's products. In particular, Article 5(A) states:

[Plaintiff] shall be responsible: (a) for loss of, damage to, or contamination of [Defendant's] Products, equipment and packaging materials occurring during the receipt, unloading, storing, handling, transferring, or loading thereof in the performance of this Agreement, provided that such loss, damage or contamination results from failure of [Plaintiff], its' employees, agents, or contractors, to exercise the degree of care in regard to such products, equipment and packaging materials that a reasonably careful person would exercise under the circumstances; [and] (b) for all loss of, damage to, or contamination of [Defendant's] products occurring during the performance of this Agreement, to the extent said products are covered by insurance, other than warehouseman's legal liability insurance, purchased by [Plaintiff], whether or not such loss or damage has resulted from the failure of [Plaintiff], its' employees, agents, or contractors, to exercise the degree of care specified in subparagraph (a), above. . . .

3. Defendant's Actions to Cancel the Agreement

According to Defendant, beginning in 2002, the condition of Plaintiff's warehouse began to decline, and Plaintiff's inventory and recordkeeping practices became disorganized. During a series of meetings between July 1, 2003 and August 12, 2003, representatives from Plaintiff and Defendant met to discuss Plaintiff's alleged unsatisfactory performance. Subsequently, Plaintiff presented to Defendant its remedial plan to address the deficiencies Defendant had identified.

On March 25, 2004 and April 2, 2004, Defendant conducted audits of Plaintiff's warehouse. In the audits, Defendant discovered additional issues regarding the warehouse's maintenance and condition. For example, the auditors found entire rows of product damaged or ruined by moisture and standing water, products crushed due to improper stacking, punctured and leaking products, and products spilled onto the warehouse floor. Defendant provided Plaintiff with the auditors' written reports, and on April 12, 2004, Sherri Bartimus ("Bartimus"), one of Plaintiff's employees, ...


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