Arrow Electronics, Inc. v. Quantum Corporation

Background

Arrow and Quantum entered a Master Agreement on September 30, 2020, and an Addendum that Quantum signed on May 12, 2021, and Arrow signed on June 4, 2021. The agreements concerned Quantum’s forecasts for products and Arrow’s procurement and supply of inventory. The agreements are governed by New York law.

Arrow alleged that Quantum breached the agreements by failing to issue purchase orders and pay for inventory that Arrow obtained based on Quantum’s forecasts. Arrow also asserted a claim for breach of the implied covenant of good faith and fair dealing. Arrow sought summary judgment establishing that Quantum breached the contract and owed either $4,029,413.20 or $3,719,807.21, plus reasonable attorneys’ fees, costs, and interest. Quantum sought partial summary judgment on several contract-interpretation issues and on the claim for breach of the implied covenant.

Quantum’s Motion for Partial Summary Judgment

The court granted Quantum’s motion in part and denied it in part.

The court denied summary judgment on Quantum’s request to bar the use of outside evidence unless Arrow first identified an ambiguous contract provision. Because the agreements principally concerned the sale of goods, the court applied New York’s version of the Uniform Commercial Code. It held that evidence of the parties’ performance, dealings, or trade practices could be used to explain or supplement the agreements, so long as that evidence did not contradict the contract language.

The court also denied summary judgment on Quantum’s request for a ruling that its forecasts could not create purchasing obligations. The court held that the forecasts themselves were not purchase orders and did not, by themselves, require Quantum to buy every product listed. But the agreements could create a purchasing obligation: Quantum’s material-requirements forecasts triggered Arrow’s obligations to create a pipeline and maintain reserved inventory, and Quantum could become obligated to issue a purchase order for reserved excess inventory that Arrow had held for 60 days after the forecast could no longer be changed.

The court granted summary judgment to Quantum on forecasts submitted before June 4, 2021. Although the parties had partially performed and Quantum had signed the Addendum on May 12, the Addendum stated that it would become effective on the date of the last signature. The court therefore held that the Addendum governed beginning June 4, 2021, and rejected Arrow’s argument that Quantum should be prevented from asserting that earlier orders were premature.

On the inventory-report issue, the court denied summary judgment for Quantum. It held that the Addendum did not use unmistakable language making Arrow’s inventory reports a condition that had to occur before Arrow could request a purchase order.

The court granted summary judgment on two limitations concerning Arrow’s requests for purchase orders. Arrow had to have received and physically held the relevant parts in its warehouse for 60 days, and it had to exercise its right to request a purchase order within a commercially reasonable time.

Finally, the court granted Quantum summary judgment on Arrow’s second claim. It held that the claim for breach of the implied covenant of good faith and fair dealing was redundant of and subsumed by Arrow’s breach-of-contract claim because both claims sought damages tied to Quantum’s failure to issue purchase orders and pay for excess inventory.

Arrow’s Motion for Summary Judgment

The court denied Arrow’s motion for summary judgment. It found genuine disputes about whether Arrow’s lead times were reasonable, including whether an 18-week lead time remained reasonable throughout the period when Arrow continued ordering inventory. Those disputes could affect whether Arrow performed its own obligations and the amount for which Quantum might be liable.

The court also found factual disputes about whether the August 2021 forecast qualified as a material-requirements plan, whether individual products could be connected to particular forecasts or purchase orders, and whether Arrow reasonably mitigated its damages. These disputes prevented summary judgment on either of Arrow’s requested damages amounts: $4,029,413.20 or $3,719,807.21.

Disposition

Judge Nathanael M. Cousins granted in part and denied in part Quantum’s motion for partial summary judgment, denied Arrow’s motion for summary judgment, and stated that the claim to be tried was Arrow’s first claim for breach of contract. The opinion also states that the court granted Quantum’s separate motion to exclude the opinion of Arrow’s expert witness Bijan Dastmalchi.