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Hemlock Semiconductor Operations, LLC v. SolarWorld Industries Sachsen GmbH

United States Court of Appeals, Sixth Circuit

August 16, 2017

Hemlock Semiconductor Operations, LLC, Plaintiff-Appellee,
v.
SolarWorld Industries Sachsen GmbH, Defendant-Appellant.

          Argued: June 14, 2017

         Appeal from the United States District Court for the Eastern District of Michigan at Bay City. No. 1:13-cv-11037-Thomas L. Ludington, District Judge.

         ARGUED:

          Larry K. Elliott, COHEN & GRIGSBY, P.C., Pittsburgh, Pennsylvania, for Appellant.

          John Ansbro, ORRICK, HERRINGTON & SUTCLIFFE LLP, New York, New York, for Appellee.

         ON BRIEF:

          Larry K. Elliott, Richard A. Ejzak, David F. Russey, Christina Manfredi McKinley, COHEN & GRIGSBY, P.C., Pittsburgh, Pennsylvania, Daniel P. Malone, Joseph E. Richotte, BUTZEL LONG, P.C., Bloomfield Hills, Michigan, for Appellant.

          John Ansbro, J. Peter Coll, Jr., Daniel W. Robertson, Alvin Lee, ORRICK, HERRINGTON & SUTCLIFFE LLP, New York, New York, Craig W. Horn, Jamie Hecht Nisidis, BRAUN KENDRICK FINKBEINER PLC, Saginaw, Michigan, for Appellee.

          Before: MOORE, GILMAN, and COOK, Circuit Judges.

          OPINION

          RONALD LEE GILMAN, Circuit Judge.

         Hemlock Semiconductor Operations, LLC (Hemlock) and SolarWorld Industries Sachsen GmbH (Sachsen) are both involved in manufacturing components of solar-power products. They entered into a series of long-term supply agreements (LTAs), by which Hemlock in Michigan would supply Sachsen in Germany with set quantities of polycrystalline silicon (polysilicon) at fixed prices between the years 2006 and 2019. The market price of polysilicon was initially well above the LTA price, but the market price plummeted several years later after the Chinese government began subsidizing its national production of polysilicon. The parties reached a temporary agreement to lower the LTA price in 2011. When that agreement expired in 2012, however, the price reverted to the original amount. Hemlock then demanded that Sachsen pay the original LTA price for the specified quantity of polysilicon for the year 2012. Sachsen refused.

         This caused Hemlock to sue Sachsen for breach of contract in the United States District Court for the Eastern District of Michigan. Based on Hemlock's motion for summary judgment, which the district court granted, Hemlock was awarded nearly $800 million in damages and prejudgment interest. For the reasons set forth below, we AFFIRM the judgment of the district court.

         I. BACKGROUND

         A. Factual background

         Hemlock and Sachsen negotiated a series of four LTAs. The first LTA (LTA I) was executed in 2005 and was to remain in force through 2015. Subsequent LTAs (LTAs II-IV) extended the parties' relationship to the end of 2019. The first three LTAs are nearly identical. LTA IV is structured differently than the others, but the text of the provisions at issue is essentially the same as in LTAs I-III.

         Two provisions of the LTAs are particularly relevant to the present case. First, a "take-or-pay" provision required that Sachsen purchase a specified quantity of polysilicon each year at a fixed price. The take-or-pay provision obligated Sachsen to pay this yearly amount even if it declined to take delivery of the polysilicon. Second, in the event that Sachsen failed to pay the specified amount for a given year, Hemlock had the right to terminate the LTAs. Sachsen would then owe Hemlock the full remaining balance of the LTA price, including amounts due for future years. We will refer to this second provision as "the liquidated-damages provision."

         After entering into the LTAs, Hemlock began a massive expansion of its manufacturing facilities in the United States at a cost of over $4 billion. The LTAs acknowledged the planned expansion several times. Sachsen was required to make significant advance payments to Hemlock under the LTAs, which were then credited against the purchase price of the polysilicon. Although the LTAs do not explicitly describe the reason for the advance payments, Sachsen acknowledges that the purpose of the payments was to help fund Hemlock's expansion.

         For the first few years of the LTAs' existence, Sachsen obtained polysilicon from Hemlock at a price far below the then-current market value. This began to change in 2009, however, when the Chinese government started subsidizing its national production of polysilicon. The result was that the market price of polysilicon eventually dropped below the LTA price.

         In response, Hemlock and Sachsen negotiated a temporary adjustment to the LTA price in 2011. After that agreement expired the following year, the parties attempted to negotiate further amendments but were unable to reach an agreement. The district court's order granting summary judgment describes the negotiations in detail, which we find no need to repeat.

         In March 2013, Hemlock sent Sachsen a "Shortfall Notice" that set forth the quantities of polysilicon that Sachsen had failed to purchase under the LTAs in 2012 and that demanded payment pursuant to the take-or-pay provision. Sachsen responded by insisting that it "did not fall short of any purchase obligations, " that the parties had permanently amended the LTAs, and that Hemlock had waived the ability to enforce the LTAs. Two days later, Hemlock sued, seeking the full amount due under the liquidated-damages provision.

         B. Procedural background

         Hemlock filed its complaint in the district court against Sachsen in March 2013. In its answer, Sachsen asserted 17 affirmative defenses, including illegality, commercial impracticability, and frustration of purpose. Hemlock moved to strike several of the affirmative defenses under Rule 12(f) of the Federal Rules of Civil Procedure. The court granted the motion in part, striking Sachsen's argument that the LTAs were illegal under European Union (E.U.) and German antitrust laws. Sachsen filed a motion for reconsideration of that decision, arguing that the court erroneously ignored one of Sachsen's arguments and misinterpreted the burden of proof under the E.U. antitrust laws at issue. The court denied the motion, concluding that despite these alleged errors, Sachsen's illegality defenses still lacked merit.

         Hemlock subsequently filed a motion for summary judgment in its favor on its breach-of-contract claim. The district court granted the motion, concluding that all of Sachsen's remaining affirmative defenses were unavailing and that Hemlock was entitled to recover under the liquidated-damages provision. Judgment for the full amount of damages requested by Hemlock, as well as for prejudgment and post-judgment interest, was entered against Sachsen. In a separate order, the district court granted in part Hemlock's motion for attorney fees and costs.

         Before us on this appeal are the district court's decisions to strike the illegality defense, to deny reconsideration of the decision to strike that defense, and to grant summary judgment to Hemlock. Sachsen has filed a separate appeal challenging the attorney-fee award.

         II. ANALYSIS

         A. ...


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