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Tegrant Alloyd Brands, Inc v. the Merchant of Tennis

January 26, 2011

TEGRANT ALLOYD BRANDS, INC., PLAINTIFF,
v.
THE MERCHANT OF TENNIS, INC., DEFENDANT.



The opinion of the court was delivered by: Frederick J. Kapala, District Judge:

MEMORANDUM OPINION AND ORDER

Plaintiff, Tegrant Alloyd Brands, Inc., has filed a three-count, second amended complaint against defendant, The Merchant of Tennis, Inc. d/b/a U.S. Merchants, seeking payment for products sold by plaintiff and received by defendant. In response, defendant asserts as both an affirmative defense and a counterclaim that the parts supplied by plaintiff were defective and non-conforming. Plaintiff moves for summary judgment as to Count I, a breach of contract claim. For the following reasons, plaintiff's motion for summary judgment is denied.

I. BACKGROUND*fn1

Plaintiff, a Delaware corporation with its principal place of business in DeKalb, Illinois is in the business of manufacturing custom plastic thermoformed packaging commonly used in the retail sale of consumer goods. Defendant, a California corporation with its principal place of business in Los Angeles, provides "just in time" packaging and distribution services to suppliers of products to wholesale clubs and other mass merchants. "Just in time" means that the products are packaged to retailer specifications and arrive at locations designated by the retailer within a short time frame.

In 2005, plaintiff contacted defendant seeking to become a supplier of plastic parts for defendant's contract packaging business. After plaintiff delivered several small projects, defendant asked plaintiff to produce custom plastic parts used in a packaging system for cordless telephones. The thermoformed plastic parts were designed to snap together as part of the packaging. The parties agreed the parts would be made of 24-gauge plastic. Plaintiff created samples at its DeKalb, Illinois plant and sent some samples to defendant for approval. Defendant approved the samples believing that the parts produced would conform to the samples. Plaintiff promised defendant that the parts would be fit for the purpose intended. Plaintiff ultimately produced the parts at its plant in Tijuana, Mexico in larger quantity production runs and using different equipment than was used to make the samples.

Defendant ordered the parts by issuing purchase orders. At defendant's request, the parts were shipped to defendant's facility in Seattle, Washington. When defendant received the parts, it believed the parts were substandard, and non-conforming, and returned some of them. In September 2006, Jeff Green, President and CEO of defendant, sent an e-mail to Jim Price, plaintiff's Vice President, asking him to please look at some pictures of packaged products and "explain how this could get past your quality control."*fn2

Thereafter, between March 23, 2007 and August 17, 2007, plaintiff issued 133 invoices for parts that were delivered to defendant. Although defendant returned some of the parts, it used most of the parts in its packaging of merchandise sold to customers. In April 2007, Justice Butler, purchasing manager for defendant, sent Price an e-mail stating that defendant expected plaintiff to use a 24-gauge plastic, but 18-gauge was being used. Butler further indicated that defendant would like credit applied to its account for the issue. Numerous other e-mails, telephone calls, and meetings ensued in which defendant notified plaintiff that the parts were non-conforming. Also during this time, defendant sent plaintiff a document entitled "Debit Note #454" which is dated July 20, 2007. The Note stated that defendant would be taking a deduction of 40% against the prices on plaintiff's invoices. On July 30, 2007, defendant sent plaintiff a check numbered 12488 in the amount of $148,790.79 to pay for 124 of the outstanding invoices. The accompanying check stub referenced each invoice for the non-conforming parts and Debit Note #454. Defendant asserts the check was payment in full for those invoices. Plaintiff did not object to the debit note or to the check before cashing the check on August 1, 2007.*fn3

Defendant continued to notify plaintiff of the defects through August 2007. On August 15, 2007, plaintiff and defendant had a meeting at plaintiff's Tijuana plant. At the meeting, plaintiff did not explain why the quality problems occurred or how it would assure such problems would not recur. Plaintiff's last delivery to defendant was invoiced on August 17, 2007. Defendant's customers paid defendant for the packaging which contained the parts delivered by plaintiff. Defendant has refused to pay plaintiff any more for the parts it received.

In Count I of its second amended complaint, plaintiff alleges that defendant has breached its contract with plaintiff by failing to pay for products that plaintiff produced and delivered to defendant. Plaintiff asserts that defendant owes plaintiff $1,659,107.85. Plaintiff now moves for summary judgment as to Count I.

II. ANALYSIS

Plaintiff argues it is entitled to summary judgment on its breach of contract claim seeking payment for the goods defendant received and sold to its customers. Under Illinois law, "a buyer must pay for the goods it accepts," ECHO, Inc. v. Whitson Co., Inc., 52 F.3d 702, 705 (7th Cir. 1995) (citing 810 ILCS 5/2-206(1)), and it is inconsistent for a buyer to reject goods, but retain possession of the property and use it for its own profit, Atlas Copco Constr. Mining Technique USA, LLC v. Indie Energy Servs. Co., LLC, No. 08 C 2363, 2009 WL 4668743, at *3 (N.D. Ill. Dec. 2, 2009). However, defendant does not claim it rejected the goods. Rather, it contends that summary judgment must be denied because (1) there has been accord and satisfaction, and (2) it is entitled to a set-off pursuant to § 2-717 of the Uniform Commercial Code (UCC).

Summary judgment will be granted if the movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The moving party must identify the specific portions of the total record which it believes establish the absence of a genuine issue of material fact. Fed. R. Civ. P. 56(c)(1); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A genuine issue of material fact exists when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). "In determining if there [is] an issue of material fact . . . the court views the record in the light most favorable to the non-moving party, and draws all reasonable inferences in that party's favor." McCann v. Iroquois Mem'l Hosp., 622 F.3d 745, 752 (7th Cir. 2010).

A. Accord and Satisfaction

Defendant first claims that plaintiff cannot be awarded summary judgment because there was accord and satisfaction of defendant's debt. Specifically, defendant argues that accord and satisfaction was achieved when it tendered check number 12488 to plaintiff, and attached the check stub referencing each invoice for nonconforming parts and Debit Note #454. Plaintiff argues that this check was not accord and satisfaction because neither the check nor the stub ...


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