Druckzentrum Harry Jung GmbH & Co. KG v. Motorola Mobility LLC
2014 U.S. App. LEXIS 23820, 2014 WL 7181473, 774 F.3d 410 (2014)
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Rule of Law:
Under the Uniform Commercial Code's parol evidence rule, a party cannot introduce evidence of prior oral or written agreements to add terms, such as an exclusivity provision, to a contract that is fully integrated. A promise to use 'good faith efforts' to meet a purchasing target is not breached when a party makes a major business change in response to a significant sales downturn, a contingency contemplated by the contract.
Facts:
- Beginning in 1995, Motorola Mobility LLC used Druckzentrum Harry Jung GmbH & Co., a German company, to print user manuals for cell phones sold in Europe, the Middle East, and Asia (EMEA).
- In 2007, Motorola initiated a new vendor bidding process, during which it shared optimistic sales forecasts with potential suppliers, including Druckzentrum.
- In January 2008, Motorola awarded Druckzentrum a two-year contract for a 'base share' of 2% of its global printing needs, with a promise to make a 'good-faith effort' to meet that target.
- The written contract contained an integration clause stating it was the 'entire understanding between the parties' and superseded all prior discussions, but it made no mention of exclusivity for the EMEA region.
- The contract also listed several reasons that could excuse Motorola from meeting the 2% target, including poor product success and 'major change in Motorola’s business.'
- During 2008, Motorola's cell-phone sales in the EMEA region dropped precipitously.
- In response to the sales downturn, Motorola decided in November 2008 to consolidate its manufacturing and distribution operations in China, which included moving all its printing needs there.
- Motorola notified Druckzentrum of the shift and ceased placing orders by the end of the first quarter of 2009, leading to Druckzentrum's bankruptcy.
Procedural Posture:
- Druckzentrum Harry Jung GmbH & Co. sued Motorola Mobility LLC in the U.S. District Court for the Northern District of Illinois, alleging breach of contract and fraud.
- The district court (trial court) dismissed Druckzentrum's claim for breach of an exclusive contract on the pleadings.
- Following discovery, the district court granted summary judgment in favor of Motorola on the remaining breach of contract and fraud claims.
- The district court entered a final judgment for Motorola.
- Druckzentrum (appellant) appealed the judgment to the U.S. Court of Appeals for the Seventh Circuit, with Motorola as the appellee.
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Issue:
Under the Uniform Commercial Code, may a party introduce parol evidence to add an exclusivity term to a fully integrated written contract that contains no such provision?
Opinions:
Majority - Sykes, Circuit Judge.
No. A party may not introduce parol evidence of prior understandings to add a new term to a written contract that is fully integrated. The contract's integration clause, which states it is the 'entire understanding between the parties,' establishes that the writing was intended as a complete and exclusive statement of the agreement. Under UCC § 2-202, this clause bars the introduction of prior or contemporaneous agreements to supplement the contract's terms. The court reasoned that an exclusivity promise is a critical term that the parties would have 'certainly' included in the written contract if they had actually agreed to it. The court also held that Motorola did not breach its 'good faith effort' obligation by failing to meet the 2% purchasing target. Motorola's decision to move its operations to China was a legitimate response to a severe business downturn, a scenario explicitly contemplated by the contract as a justification for missing the target, and there was no evidence of bad faith.
Analysis:
This decision strongly reinforces the power of an integration clause under the UCC's parol evidence rule, underscoring the finality of a complete written agreement. It serves as a stark reminder to commercial parties that all essential terms, especially significant ones like exclusivity, must be explicitly included in the final contract, as courts will refuse to look at prior negotiations to add them later. Furthermore, the case clarifies the boundaries of a 'good faith effort' clause, establishing that it does not obligate a company to continue an unprofitable business practice to benefit a supplier, particularly when the contract anticipates that major business changes may excuse performance. The ruling protects a party's ability to make rational business decisions in response to market changes without being held in breach of non-absolute contractual duties.
