Nanometrics, Incorporated v. Optical Solutions, Inc.

Background

This consolidated action arises from a contractual relationship between Nanometrics, a manufacturer of semiconductor-wafer measuring equipment, and Optical Solutions, Inc. (OSI), a manufacturer of optical lenses used in that equipment. OSI’s operative complaint asserted breach of contract and promissory estoppel. Nanometrics moved for summary judgment on both claims.

The parties entered an agreement titled “Addendum to Purchase Agreement.” OSI describes it as an exclusivity agreement. Under the agreement, OSI would become Nanometrics’s exclusive supplier of small-spot lenses if OSI could produce lenses meeting specified design and commercial-performance requirements by the applicable completion date. The agreement also allowed Nanometrics to buy from alternative suppliers if OSI could not meet those requirements, while requiring notice and a reasonable opportunity for OSI to increase production when commercial needs increased.

OSI claimed that it bought specialized equipment costing more than $838,000, and later made two additional equipment purchases, in reliance on negotiations and understandings concerning exclusivity. OSI also claimed that Nanometrics breached the agreement by refusing to use OSI’s 25-micron lenses, not giving OSI opportunities to meet commercial requirements or quote a revised scope of work, and contracting with another supplier.

Summary-judgment standard

Summary judgment is appropriate only when the evidence shows no genuine dispute about a material fact and the moving party is entitled to judgment as a matter of law. A material fact could affect the case’s outcome. A factual dispute is genuine when the evidence could allow a reasonable jury to decide for the nonmoving party. At this stage, the court does not decide witness credibility or weigh competing evidence.

Breach-of-contract claim

The court considered whether OSI had presented evidence creating factual disputes about the elements challenged by Nanometrics: an enforceable contract, OSI’s performance or excuse for nonperformance, and damages.

The court had previously held that the agreement did not impose a definite obligation to perform on OSI. But the court explained that an otherwise illusory agreement may be enforceable when the promisor has at least partly performed. OSI presented evidence that it purchased specialized equipment, that its lenses met relevant specifications, that it worked to meet changing specifications, and that it provided the requested number of lenses by the September 30, 2014 completion date while retaining the remaining lenses as OSI claimed Nanometrics instructed. Conflicting declarations from John Leon created a genuine factual dispute about whether OSI partly performed the agreement.

The court also found factual disputes about whether OSI met the conditions for exclusivity. The parties presented conflicting evidence about whether the completion date was December 10, 2013, or had been modified to September 30, 2014. They also presented conflicting evidence about the applicable product-design specifications, including whether there was a final set of specifications and whether Nanometrics changed or relaxed requirements. The court noted that Nanometrics apparently never provided OSI with commercial product-performance specifications. Because a party’s prevention of performance can be treated as performance by the other party, Nanometrics could not rely on OSI’s alleged failure to satisfy specifications that Nanometrics had not provided.

On damages, Nanometrics argued that OSI could not prove lost profits because the agreement covered products using defined small-spot lenses and Nanometrics had not sold such products. OSI presented evidence that Nanometrics referred to both OSI’s and competitors’ lenses as small-spot lenses, changed the required design without informing OSI, and sold instruments using a small-spot lens. The court found a genuine dispute about whether OSI was damaged by Nanometrics’s use of another lens supplier.

Promissory-estoppel claim

Promissory estoppel is a claim based on a clear promise, reliance on that promise, substantial detriment, and damages. Nanometrics argued that OSI’s contract and promissory-estoppel claims were mutually exclusive. The court declined to dismiss either claim on that basis because it had found only a genuine factual dispute about consideration, not that the agreement actually contained adequate consideration.

Nanometrics also argued that OSI could not establish a clear and unambiguous promise or reasonable reliance because the exclusivity promise was conditional. The court concluded that OSI had presented sufficient evidence to create a factual dispute about whether it met the condition for exclusivity and whether its reliance was reasonable. The court likewise found a factual dispute about whether OSI reasonably relied on promises of exclusivity when incurring capital costs for specialized equipment.

Disposition

Because genuine disputes of material fact existed as to each challenged element of OSI’s breach-of-contract and promissory-estoppel claims, Judge Beth Labson Freeman denied Nanometrics’s motion for summary judgment. The order did not decide the ultimate factual questions identified in the motion.