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Drywall Supply Central, Inc. v. Trex Co., Inc.: US District Court: UNIFORM COMERCIAL CODE | CONTRACT - Minnesota UCC Statute of Frauds bars repurchase claim; no good faith breach

1
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Drywall Supply Central, Inc.,
Plaintiff,
v. Civ. No. 07-1772 (JNE/JJG)
ORDER
Trex Company, Inc.,
Defendant.
Douglas R. Boettge, Esq., and Elizabeth C. Kramer, Esq., Leonard, Street and Deinard, PA, and
Michael J. Auger, Esq., Drywall Supply Central, Inc., appeared for Plaintiff Drywall Supply
Central, Inc.
Teresa J. Kimker, Esq., Halleland Lewis Nilan & Johnson PA, appeared for Defendant Trex
Company, Inc.
This is a diversity action brought by Drywall Supply Central, Inc., against Trex
Company, Inc. Drywall made several purchases of decking materials from Trex. Trex
subsequently terminated the parties business relationship. After Trex allegedly withheld return
credits and failed to repurchase inventory from Drywall, Drywall brought this action for civil
theft, conversion, unjust enrichment, breach of contract, breach of implied duty of good faith and
fair dealing, and a declaratory judgment that Trex has a legal obligation to buy back the
remainder of the Trex goods and materials in Drywalls possession. Trex counterclaimed for a
declaratory judgment that Trex has no legal obligation to repurchase Drywalls Trex inventory.
The case is before the Court on Trexs motion for partial summary judgment. For the reasons
stated below, Trexs motion is granted in part and denied in part as moot.
2
I. BACKGROUND
Trex manufactures composite decking, railing, and fencing products. Trex and Westmont
Building Products entered into a distributor agreement in 2002. In 2005, Drywall bought
Westmont Building Products pursuant to the terms of an asset purchase agreement. Under the
agreement, Drywall bought Westmonts Trex inventory and agreed to pay Trex according to the
terms of the agreements executed by Westmont and Trex. Following the asset purchase, Drywall
purchased additional materials from Trex to distribute and sell to its business customers. To
purchase these materials, Drywall sent purchase orders to Trex. Trex shipped the requested
materials to Drywall along with an invoice for payment. Drywall then sent payment as directed
in the invoice. More than once, Drywall returned purchased materials to Trex. Trex accepted
the returned materials and issued credit invoices to Drywall.
On October 5, 2006, Trex notified Drywall that it was terminating its business
relationship with Drywall effective November 4, 2006. At the time of the termination, Drywalls
outstanding credit invoices totaled approximately 2,000. Additionally, Drywall possessed
approximately million worth of Trex goods and materials in its inventory. Drywall has since
sold approximately million of its Trex inventory to its customers and to distributors, and still
has the remainder of the Trex inventory in its possession. Trex has declined to buy back the
remaining Trex inventory from Drywall.
II. DISCUSSION
Summary judgment is proper if the pleadings, depositions, answers to interrogatories,
and admissions on file, together with the affidavits, if any, show that there is no genuine issue as
to any material fact and that the moving party is entitled to a judgment as a matter of law. Fed.
R. Civ. P. 56(c). The moving party bears the initial responsibility of informing the district court
3
of the basis for its motion, and must identify those portions of [the record] which it believes
demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S.
317, 323 (1986). If the moving party satisfies its burden, Rule 56(e) requires the non-moving
party to respond by submitting evidentiary materials that designate specific facts showing that
there is a genuine issue for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.
574, 587 (1986). In determining whether summary judgment is appropriate, a court must look at
the record and any inferences to be drawn from it in the light most favorable to the non-moving
party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
A. Statute of frauds
Trex contends the statute of frauds bars Drywalls claims that Trex is obligated to
repurchase Drywalls existing Trex inventory because there is no written agreement requiring
Trex to do so following termination of the parties business relationship. Drywall responds by
arguing that the written purchase orders, invoices, and credit invoices associated with Drywalls
purchases of Trex materials are writings that satisfy the statute of frauds, and that the parties
course of dealing provides the legal basis for imposing the buy-back obligation on Trex.
Minnesotas Uniform Commercial Code (UCC) provides that a contract for the sale of
goods for the price of 0 or more is not enforceable unless there is some writing sufficient to
indicate that a contract for sale has been made between the parties and signed by the party
against whom enforcement is sought. Minn. Stat. 336.2-201 (2006); Melford Olsen Honey,
Inc. v. Adee, 452 F.3d 956, 961 (8th Cir. 2006). The primary purpose of the writing requirement
in the statute of frauds is to demonstrate that a contract for sale has indeed been made. Casazza
v. Kiser, 313 F.3d 414, 419 (8th Cir. 2002). Whether the parties have satisfied the statute of
frauds is a question of law. See Melford Olsen Honey, 452 F.3d at 961-62.
4
There is no dispute that the price of the inventory that Drywall alleges Trex agreed to
repurchase exceeds 0. Moreover, Drywall acknowledges that it cannot point to any language
in the purchase orders and invoices exchanged between the parties, or in the original distributor
agreement, that requires Trex to repurchase Drywalls Trex inventory. Drywall further admits
that there are no other written agreements between Trex and Drywall that govern Trexs alleged
buy-back obligation. Under these circumstances, the Court concludes that the statute of frauds is
applicable because the price of the inventory Drywall alleges Trex is required to buy back
exceeds 0 and the alleged agreement requiring Trex to repurchase the inventory was not
reduced to writing and signed by Trex. 1 See id.
In the absence of any written agreement, Drywalls allegations of a buy-back obligation
can proceed only if the alleged buy-back agreement falls under one of the three exceptions set
forth in the statute of frauds. Section 336.2-201(3) of the UCC identifies three possible
exceptions to its written requirements: (a) if the product is specially manufactured for the buyer;
(b) if the party against whom enforcement is sought admits that a contract was made; or (c) with
respect to goods for which payment has been made and accepted or which have been received
and accepted. See Minn. Stat. 336.2-201(3).
Drywall contends the third exception applies here because Trex has accepted payment
from Drywall for the inventory at issue in its buy-back claims. This, though, was nothing more
than payment for goods received. Drywall alleges the existence of an agreement between the
parties that requires Trex to repurchase the inventory in Drywalls possession that Drywall
1 The Court rejects Drywalls contention that the volume of purchase orders, invoices, and
credit invoices exchanged between Trex and Drywall satisfies the statute of frauds. None of
these agreements contain a buy-back requirement. One, five, or even ten purchase agreements
times zero written agreements requiring repurchase is still no written agreement. That there is no
applicable course of conduct exception is addressed infra.
5
previously purchased from Trex. But Drywall presents no evidence that demonstrates Trex has
accepted any portion of this inventory back from Drywall or that Trex has engaged in any
conduct that is inconsistent with Drywalls ownership of the inventory that could be construed as
acceptance.2 See Minn. Stat. 336.2-606 (2006). Nor does Drywall present any evidence that
Trex has made payments to Drywall for the return of any part of this inventory. The Court
therefore concludes that Drywalls assertions of acceptance by Trex of payment or goods under
the third exception to the statute of frauds are without merit.
The Court also rejects Drywalls contentions that the course of dealing between the
parties during Drywalls eighteen months of purchases from Trex provides a basis for the Court
to read a buy-back term into each individual sale of goods agreement. First, the list of
exceptions to the writing requirements of the statute of frauds applicable to the sale of goods
does not include a course of conduct exception. See id.; W.H. Barber Co. v. McNamara-Vivant
Contracting Co., 293 N.W.2d 351, 354-55 (Minn. 1979).
Second, in the context of a sales transaction governed by the UCC, evidence regarding a
course of dealing is admissible to explain a term of the sales contract if the proffered evidence
is relevant to prove a meaning to which the language of the instrument is reasonably
2 Minnesota Statutes 336.2-606 provides the following definition of acceptance of goods
under the UCC:
(1) Acceptance of goods occurs when the buyer
(a) after a reasonable opportunity to inspect the goods signifies to the
seller that the goods are conforming or that the buyer will take or
retain them in spite of their nonconformity; or
(b) fails to make an effective rejection (subsection (1) of section 336.2--
602), but such acceptance does not occur until the buyer has had a
reasonable opportunity to inspect them; or
(c) does any act inconsistent with the seller's ownership; but if such act
is wrongful as against the seller it is an acceptance only if ratified by
the seller.
(2) Acceptance of a part of any commercial unit is acceptance of that entire unit.
6
susceptible. Am. Mach. & Tool Co. v. Strite-Anderson Mfg. Co., 353 N.W.2d 592, 597 (Minn.
Ct. App. 1984) (quoting Board of Trade of San Francisco v. Swiss Credit Bank, 597 F.2d 146,
149 (9th Cir. 1979)). Here, Drywall has failed to identify any language in the purchase orders or
invoices that suggests the parties contemplated that Trex would be required to repurchase
Drywalls Trex inventory, regardless of its condition or salability, following the termination of
the parties business relationship. Further, although Drywall presents evidence that Trex
previously accepted (bought back) materials when there were defects or warranty issues, it
presents no evidence linking that with an obligation to repurchase all of the Trex materials in
Drywalls inventory regardless of condition or salability. 3 Consequently, there is no term in a
written agreement before the Court that could be explained by Drywalls proffered course of
dealing evidence, and the Court thus concludes that the course of dealing evidence is not relevant
to prove a meaning to which language of an agreement between Drywall and Trex would
reasonably be susceptible.
Moreover, despite Drywalls disavowal of the applicability of the distributor agreement
executed by Trex and Westmont in 2002, Drywall attached the agreement to its Complaint. The
distributor agreement does not require repurchase either. The agreement includes a warranty
provision that specifically limits Trexs obligations regarding defective items to replacement
after certain conditions are met. The agreement also addresses Trexs obligations regarding
repurchase of inventory in the event the parties subsequently terminate their agreement.
Paragraph 11(e) provides that Trex shall have the option, within sixty (60) days after the
effective termination, to purchase [Westmonts] inventory which was purchased by [Westmont]
within the past twelve (12) months prior to termination. (Emphasis added.)
3 Drywall asserts that the product is not salable because it became obsolete at some point.
7
On the basis of the record before it, the Court concludes as a matter of law that Drywalls
allegations that Trex is obligated to repurchase Trex inventory from Drywall are not sufficiently
documented in writing to raise a triable issue of fact on whether the statute of frauds is satisfied.
In the absence of a written agreement obligating Trex to buy back approximately million of
Trex inventory in Drywalls possession, the Court concludes that Trex is entitled to summary
judgment on Drywalls claims asserting any such obligation. In addition, Trex is entitled to
summary judgment on Drywalls claim for declaratory judgment that Trex is legally obligated to
repurchase the Trex inventory in Drywalls possession. 4
B. Breach of implied duty of good faith and fair dealing
Drywall alleges a claim against Trex for breach of an implied duty of good faith and fair
dealing. Drywall asserts that Trex breached this duty when Trex abruptly terminated Trexs
business relationship with Drywall and then refused to buy back the Trex inventory in Drywalls
possession. It is well settled that contracts governed by Minnesota law include an implied
covenant of good faith and fair dealing requiring that one party not unjustifiably hinder the
other partys performance of the contract. In re Hennepin County 1986 Recycling Bond Litig.,
504 N.W.2d 494, 502 (Minn. 1995); see also Minnwest Bank Cent. v. Flagship Props. LLC, 689
N.W.2d 295, 303 (Minn. Ct. App. 2004); Sterling Capital Advisors, Inc. v. Herzog, 575 N.W.2d
121, 125 (Minn. Ct. App. 1998). However, it is also well settled that this implied duty of good
4 Because Drywalls declaratory judgment claim and Trexs counterclaim for declaratory
judgment raise identical factual and legal issues regarding Trexs alleged obligation to buy back
Drywalls inventory, the Court concludes that Trexs counterclaim is redundant. As such, Trexs
counterclaim must be dismissed as it is rendered moot upon disposition of Drywalls declaratory
judgment claim. See Mille Lacs Band of Chippewa Indians v. State of Minnesota, 152 F.R.D.
580, 582 (D. Minn. 1993) (citing Aldens, Inc. v. Packel, 524 F.2d 38, 51-52 (3d Cir.1975)).
8
faith and fair dealing does not apply to sales contracts. See Minnwest Bank Cent., 689 N.W.2d at
303; Sterling Capital Advisors, 575 N.W.2d at 125.
Drywall fails to demonstrate the existence of a contractual agreement between Drywall
and Trex that is not a contract for the sale of goods. Indeed, Drywall asserts that the only written
agreements between Drywall and Trex are the purchase orders, invoices, and credit invoices
related to Drywalls purchase of Trex goods and materials. These agreements are insufficient to
demonstrate a factual issue regarding a general contractual relationship between Trex and
Drywall. The exemplary purchase orders and invoices offered by Drywall represent separate
purchases and constitute separate contracts between Trex and Drywall for the sale of goods. See
W.H. Barber, 293 N.W.2d at 355. As such, these agreements, as a matter of law, do not include
an implied duty of good faith and fair dealing. In the absence of sufficient evidence of an
agreement between Trex and Drywall that is not a contract for the sale of goods, the Court
concludes that Trex is entitled to summary judgment on Drywalls claim for breach of implied
duty of good faith and fair dealing.
C. Motion for summary judgment is not premature
Drywall contends the instant motion for partial summary judgment is premature and that
it should be permitted to conduct discovery prior to the Courts determination on its merits. The
Court disagrees.
Federal Rule of Civil Procedure 56 permits a motion for summary judgment by the
defendants at any time. See Fed. R. Civ. P. 56(b). It is not an abuse of discretion for a district
court to grant summary judgment before the opposing party has conducted any discovery at all,
even if that party has requested a continuance pursuant to Rule 56(f), if that party does not
demonstrate how discovery will provide rebuttal to the movants claims. See Fed. R. Civ. P.
9
56(f); Alexander v. Pathfinder, Inc., 189 F.3d 735, 744 (8th Cir. 1999). Drywall admits that
there are no written agreements outside of the purchase orders and invoices that govern Trexs
alleged obligation to buy back Drywalls Trex inventory and has admitted that these sales
contracts do not contain any express terms that could provide the basis for the imposition of a
repurchase obligation on Trex. The Court thus concludes that additional discovery will not
provide Drywall with a rebuttal to Trexs statute of frauds defense and Trexs summary
judgment motion on Drywalls buy-back claims is timely and appropriately before the Court at
this time.
III. CONCLUSION
Based on the files, records, and proceedings herein, and for the reasons stated above, IT
IS ORDERED THAT:
1. Trex Company, Inc.s motion for partial summary judgment [Docket No.
18] is GRANTED IN PART and DENIED IN PART AS MOOT.
2. Count V of the Complaint is DISMISSED, to the extent it is based on
allegations that Trex is obligated to buy back Trex inventory in Drywalls
possession.
3. Count VI and Count VII of the Complaint are DISMISSED.
4. Trexs motion for summary judgment on its counterclaim for declaratory
judgment is DENIED AS MOOT and the counterclaim is DISMISSED.
Dated: November 8, 2007
s/ Joan N. Ericksen
JOAN N. ERICKSEN
United States District Judge
 

 
 
 

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