BJB ELECTRIC LP v. BRIDGELUX, INC.

Background

BJB Electric and Bridgelux entered into a Letter Agreement around March 21, 2016, concerning LED holders for Bridgelux’s Vero 2.0 product series. BJB Electric was to obtain orders for 15 million holders during a four-year Cost Sharing Period running from October 2016 through October 2020. If it did not meet that minimum, Bridgelux agreed to pay $0.08 for each holder in the shortfall. BJB Germany manufactured the holders.

By summer 2020, Bridgelux had purchased about 2.2 million holders. On August 14, 2020, Bridgelux submitted a purchase order, P.O. 0801-01, that purported to order the remaining approximately 13 million holders but scheduled most deliveries for 2025 and 2026. BJB Electric did not immediately accept it and asked Bridgelux to revise the delivery schedule. Bridgelux later submitted replacement purchase orders, including P.O. 1104-01 after the Cost Sharing Period ended. The parties disputed whether these orders satisfied the Letter Agreement.

Contract interpretation

The court held a bench trial and interpreted the agreement under California law. Article 2 required BJB Electric to “obtain orders” for at least 15 million holders during the Cost Sharing Period. The court found that phrase ambiguous because it could mean more than simply placing an order, but it did not require every holder to be delivered and paid for during the four-year period.

The court rejected Bridgelux’s position that merely submitting any order satisfied the minimum. That interpretation would make the Cost Sharing Period largely meaningless and could allow an order for delivery far in the future to satisfy the agreement. The court also rejected BJB Electric’s position that it could avoid the minimum simply by rejecting any order or that all 15 million holders had to be delivered and paid for during the Cost Sharing Period.

The court considered the parties’ trial evidence and their prior course of performance. Earlier orders generally resulted in delivery within five to 60 days, and the parties had not previously treated orders scheduled for delivery years later as ordinary orders. The court concluded that BJB Electric had not “obtained orders” for 15 million holders when Bridgelux submitted P.O. 0801-01. It also found that BJB Electric did not improperly prevent satisfaction of the contractual condition by declining to accept that purchase order immediately, because the proposed delivery schedule was unlike the parties’ prior arrangements and was not shown to be a mutually agreed schedule.

The court did not decide whether P.O. 0801-01 technically qualified as an “order,” because it reached the same result even assuming that it did. The later purchase orders did not eliminate Bridgelux’s obligation under the original Letter Agreement. The court found no sufficient basis to conclude that P.O. 1104-01 replaced or superseded the original liquidated-damages provision.

Liquidated damages

The Letter Agreement required Bridgelux to pay $0.08 for each unit in the shortfall. Bridgelux argued that this provision was an unenforceable penalty because actual damages were easy to calculate and because the amount was based partly on BJB Germany’s investment rather than an investment by BJB Electric.

Under California law, a liquidated-damages provision is generally enforceable unless the party challenging it proves that it was unreasonable when the contract was made. The court found that Bridgelux did not meet that burden. The $0.08 amount was based on estimated tooling costs of about $1.2 million divided by the 15-million-unit minimum. The court concluded that actual damages could involve lost profits, investment costs, interest, and uncertain manufacturing efficiencies, making them more complicated than Bridgelux claimed.

The court also found relevant that both parties had counsel, had relatively equal bargaining power, and negotiated the provision. The provision’s amount decreased as BJB Electric sold more holders, which reasonably connected the payment to BJB Electric’s expected losses. The court further held that using BJB Germany’s investment as a marker for BJB Electric’s potential losses did not mean BJB Electric was seeking to recover BJB Germany’s separate damages.

Disposition

The court ruled that BJB Electric prevailed on its breach-of-contract claim. It awarded BJB Electric $0.08 per unit for a shortfall of 12,779,602 units, totaling $1,022,368.16. It also awarded prejudgment interest at 10% per year from November 1, 2020, through the date of judgment. The parties were directed to meet and confer and submit a proposed final judgment with an interest calculation within 30 days after the order’s entry.