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Grigoleit Co. v. Whirlpool Corp.

May 10, 2010

THE GRIGOLEIT COMPANY, A CORPORATION, PLAINTIFF,
v.
WHIRLPOOL CORPORATION, A CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Michael P. McCUSKEY Chief U.S. District Judge

OPINION

Plaintiff, Grigoleit Company, filed a complaint against Defendant Whirlpool Corporation in state court in 2005. The case was then removed to federal district court. On September 20, 2005, this court issued a stay on the case while the issue of whether Whirlpool had considered Grigoleit as a supplier for all the components it should have was considered by an arbitrator. That issue is still in pending arbitration. On October 30, 2009, Whirlpool filed this Partial Motion for Partial Summary Judgment on the Non-Arbitrable Issue of Damages (#40). Grigoleit filed its Response (#41) on December 11, 2009, followed by Whirlpool's Reply (#48) on January 8, 2010. For the following reasons, Whirlpool's Motion for Partial Summary Judgment on the Non-Arbitrable Issue of Damages (#40) is GRANTED.

BACKGROUND

Grigoleit, an Illinois company, is a long time supplier of knobs and other appliance components to Whirlpool, a Delaware corporation with its principal place of business in Michigan. In late 1991 Whirlpool instituted a Knob Optimization Program that removed Grigoleit from Whirlpool's knob supplier base. Grigoleit asked Whirlpool to reconsider its decision to remove Grigoleit from the knob supplier base. When Whirlpool failed to do so, Grigoleit accused Whirlpool of infringing two Grigoleit patents related to knobs, taking the position that Whirlpool was purchasing knobs from Phillips Plastic Corporation, a Grigoleit competitor, that incorporated technology supposedly covered by the Grigoleit patents.

In order to resolve Grigoleit's claim, Whirlpool entered into a License Agreement as of June 11, 1993. A provision of the License Agreement entitled "Royalties" is the one at issue in this case. It is Paragraph 3 of the Agreement and states:

"Royalties

Whirlpool shall not be obligated to pay Grigoleit any monies as royalties for the right, license, and privilege granted herein so long as Whirlpool continues to purchase from Grigoleit Whirlpool's requirement for present styling of knobs for the "Estate" and "Roper" brand lines of automatic clothes washers and dryers and so long as, in the opinion of an arbitrator established in accordance with the procedures of a recognized and independent arbitration service, Whirlpool continues to give serious consideration to Grigoleit by working with and purchasing from Grigoleit various appliance components, when in regards to such components it is reasonable to believe Grigoleit can provide more than parity in technology, quality, service, delivery and price in comparison to other qualified suppliers in the Whirlpool supplier base at such time."

Grigoleit concedes that this License Agreement expired by its own terms along with its patents in 2003. Grigoleit contends, however, that there were instances during the term of the Agreement where Whirlpool decided to purchase appliance components from another supplier without considering Grigoleit, even though it would have been reasonable to believe that Grigoleit could have provided "more than parity" in terms of technology, quality, service, delivery and price. Grigoleit therefore contends that Whirlpool breached its obligations under the License Agreement. Grigoleit asserts that its damages for Whirlpool's alleged breach is the "benefit of the bargain" Grigoleit should have enjoyed- its lost profits on the appliance components Whirlpool sourced with other suppliers without giving serious consideration to Grigoleit. As dictated by the License Agreement, Grigoleit submitted to arbitration the question of whether there were supply opportunities with respect to which Grigoleit could have offered "more than parity" in the various categories.*fn1

WHIRLPOOL'S MOTION FOR PARTIAL SUMMARY JUDGMENT

In its Motion, Whirlpool argues that the provision in the License Agreement regarding the consideration of Grigoleit as a supplier is a condition, not a promise. Whirlpool argues that Paragraph 3 contains no words of promise and that Whirlpool did not agree to continue to purchase the specified product from Grigoleit or give it consideration. Rather, Whirlpool contends, Grigoleit granted them the right to use the licensed technology without paying royalties "so long as" it continued to give Grigoleit consideration. The words "so long as" are, in this provision, words of condition. The only promise in the Agreement is that Grigoleit would allow Whirlpool to use the licensed technology without royalty payments, creating a unilateral contract. This promise, however, was conditioned upon Whirlpool continuing to purchase certain products and giving Grigoleit consideration for other products. Nowhere in the License Agreement or elsewhere did Whirlpool promise in return to satisfy the condition. Whirlpool is not subject to liability for breach of contract for failure to satisfy these conditions and a claim for lost profits. Further, failure to fulfill a contract condition, rather than a contract promise, does not entitle Grigoleit to consequential damages in the form of profit lost on each supply opportunity for which it was not considered. Whirlpool's failure to fulfill the condition then waives Grigoleit's obligation not to charge Whirlpool royalties for the use of Grigoleit's patented technology.

GRIGOLEIT'S RESPONSE

In its Response, Grigoleit argues that the contract in question is ambiguous, and thus a factual question is presented as to the meaning of its provisions and the intent of the parties in entering the contract. By using extrinsic evidence, Grigoleit argues, prongs 1 and 2 of Paragraph 3 of the Licensing Agreement are shown to be promises, not conditions. Grigoleit claims that "so long as" is used in the same sense as "with the understanding that." "So long as" was used to make the events set forth in prongs 1 and 2 of Paragraph 3 obligations, not conditions. Grigoleit further argues that interpreting "so long as" the same as "with the understanding that" as creating promises or covenants by Whirlpool to perform prongs 1 and 2 for the duration of the Agreement is consistent with the provisions of the Licensing Agreement as a whole. Grigoleit claims the grant by Grigoleit to Whirlpool was not a "royalty free" license, but rather the consideration to Grigoleit for the right, license, and privilege granted "was in the form of a promise to source purchases, the measure of non-monies royalties." Grigoleit also argues that a money-royalty is inconsistent with the Licensing Agreement, because if the parties had already set up a provision for an arbitrator to resolve issues that might arise with respect to Whirlpool's performance under prong 2, why did they not provide for an arbitrator or other means of determining a reasonable royalty in the event of a non-occurrence of either condition? "Further, if 'so long as' creates a condition on the freedom from paying royalties and Grigoleit is only entitled to payment of money royalties, this suggests that the language 'Whirlpool shall not be obligated to pay Grigoleit any monies as royalties for the right, license, and privilege granted herein so long as" would create a remedy limitation, inconsistent with the language of Paragraph 5 allowing permissive termination by either party in the event of a breach, 'in addition to all the remedies available to it at law or inequity.'"

In the alternative, Grigoleit argues that if prongs 1 and 2 are deemed to be conditions on the freedom from paying monies as royalties, then by implication Defendant promised to pay royalties if Whirlpool did not perform prongs 1 or 2, making it a "promise conditional." Therefore, Whirlpool's implied promise to pay money royalties conditioned on a performance of prongs 1 and 2 by Whirlpool, as promisor, is a promise of alternative performances, as each of the alternative performances would have been consideration if it alone had been bargained for. Grigoleit argues that the damages for breach of an alternative contract are determined in accordance with that one of the alternatives that is chosen by the party having an election, or in case of breach without an election, in accordance with the alternative test that will result in the smallest recovery. Grigoleit points to an October 1994 letter from Whirlpool in which Whirlpool notified Grigoleit that Whirlpool had fully complied with the terms of the Agreement and intended to continue such compliance in the future and that it would continue to purchase from Grigoleit its requirements for present styling of knobs for the "Estate" and "Roper" brand lines of automatic clothes washers and dryers. Whirlpool in that letter asserted that it continued to give Grigoleit serious consideration as a supplier for various appliance components. Grigoleit concludes that

"Whirlpool's statement of position in its October 3, 1994 letter constitutes an election of an alternative to perform Prongs 1 and 2 of Paragraph 3 and Whirlpool did not change its position for the duration of the License Agreement which expired by its terms September 2003. Further, Whirlpool did not pay 'monies' as royalties to Grigoleit for the right, license, and privilege granted by Grigoleit at any time during the term of the License Agreement, not did Whirlpool at any time notify Grigoleit of any desire or intention to pay "monies" as royalties. Grigoleit, in the event of a breach of that alternative elected by Whirlpool, would be entitled to lost profits as a result from the breach of Prong 2 of Paragraph 3."

Grigoleit also argues, in a third alternative, that if the court finds the language of the License Agreements are conditions as relates to prongs 1 and 2 of Paragraph 3, then "genuine issues of material fact exist regarding interpretation of the Contract's terms in light of the apparent purpose of the Contract as a ...


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