Koch Materials Company v. Shore Slurry Seal, Inc.

205 F. Supp. 2d 324 (2002)

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Nature of the Case

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Facts

P is a manufacturer of asphalt and other road surfacing materials. In February 1998, P bought from D an asphalt plant in New Jersey the domestic license rights to a specialty road surfacing substance, known as 'Novachip.' P's purchase price was five million dollars, payable in three installments. The last and smallest of these installments, in the amount of $500,000, is not due until 2004. D agreed that for the seven years following the sale it would purchase all of its asphalt requirements from P, and in any event at least two million gallons of asphalt per year. The Agreement provided that, in the event, Shore purchased less than six million gallons over the last three years of the contract, the $500,000 installment payment would be reduced by the same percentage by which Shore missed the six million gallon mark. D promised to utilize at least 2.5 million square yards of Novachip annually, either in its own business or through sublicense agreements in certain permitted regions, and to pay royalties to P accordingly. In three years, D met or exceeded its two million gallon minimum but sold somewhat less than the 7.5 million square yards of Novachip the Sublicense Agreement called for. The parties adjusted the third-year installment payment to account for the shortfall. Capoferri, D's President and sole shareholder, sent a letter to P that he was retiring and selling the business. As part of the sale, it was intended that 100% of any and all existing D contracts will be assigned and/or sold to the prospective buyer. The Nova Chip Sublicense Agreement was not part of this proposed asset sale. D was to continue to exist beyond the closing date in order to primarily collect and remit Nova Chip royalties on behalf of Koch Pavement Solutions. P responded on April 3, 2001, expressing concern about D's continued capacity to live up to its two million gallons per year commitment to buy asphalt emulsions and cutbacks and to meet its minimum square yardage requirements for Novachip. P was uneasy about the secrecy surrounding D's negotiations and the terms and conditions of sale. P did not know the prospective purchaser, the closing date or what, if any, arrangements have been made to provide for an assignment of D's obligations to the new purchaser. P asked for adequate assurance of performance from D. D’s response was defiant and argumentative, and D refused to provide basic information. P sued D seeking recognition of their right to treat d's failure to give adequate assurances as a repudiation of the contract, pursuant to UCC 2-609(1). D has continued to purchase asphalt and other products covered by the Agreement with P, and to remit royalties under the Sublicense Agreement.