Cabot Corp. v. AVX Corp.

18 Mass. L. Rptr. 36
CourtMassachusetts Superior Court
DecidedJune 18, 2004
DocketNo. 031235BLS
StatusPublished

This text of 18 Mass. L. Rptr. 36 (Cabot Corp. v. AVX Corp.) is published on Counsel Stack Legal Research, covering Massachusetts Superior Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Cabot Corp. v. AVX Corp., 18 Mass. L. Rptr. 36 (Mass. Ct. App. 2004).

Opinion

van Gestel, J.

This matter is before the Court on a motion by the plaintiff, Cabot Corporation, through its Performance Materials Division (“CPM”), for partial summary judgment said to be on Counts I, II, III, IV and V of its complaint and on Counts I, II, III and IV of the defendants’ counterclaims.1

BACKGROUND

CPM is one of only a few significant suppliers of tantalum powder and wire (‘Tantalum Products”). Certain industry reports suggest that in the year 2000 CPM and one other company together shared in the production of approximately 90% of the world’s tantalum powder and mill products, and that CPM produced about 50% of the world’s total processed tantalum.

CPM holds patents on the process to produce tantalum flake powder, which can operate at higher voltages, and, therefore, no one else produces tantalum products that compete with CPM’s C-255 and C-275 product.

Tantalum Products are used in the production of high performance electronic capacitors.

The defendant AVX Corporation is one of the world’s largest manufacturers and seller of tantalum capacitors. Capacitors Eire passive components that are used in a wide range of modem electronic devices, including cellular telephones and personal computers. The other defendant, AVX Limited, is a wholly-owned subsidiaiy of AVX Corporation. A majority of AVX Corporation’s shares are owned by Kyocera Corporation, a Japanese conglomerate. Hereafter, unless necessary to distinguish otherwise, AVX Corporation and AVX Limited will be referred to as (“AVXj.

The shares of each of Cabot Corporation and AVX Corporation are publicly traded on the New York Stock Exchange, and each has annual sales of more than one billion dollars. These two companies are highly sophisticated in the business that is the subj ect of this litigation.

The matter involves the purchase by AVX, and the sale to it by CPM, of Tantalum Products.

Tantalum is an elemental metal (chemical symbol Ta,” atomic number 73) that is approximately as rare in nature as uranium. Tantalum is extremely resistant to corrosion, is highly ductile, and has ahigh dielectric constant across a broad range of temperatures. Consequently, tantalum is a preferred raw material for high performance electronic capacitors.

Historically, the market for tantalum has been highly volatile. Periods of high demand, intermittent supply shortages, inventory hoarding, and sharply rising prices have been followed by recurring episodes of reduced demand, over-production, large customer inventories and rapidly falling prices. Although prices of other industrial metals frequently parallel general economic cycles, the relative scarcity of tantalum and its historical susceptibility to supply shortages have caused fluctuations in the price of tantalum to be much more pronounced than those of other industrial metals.

CPM and AVX have a history with each other in purchasing and selling tantalum that goes back for many years. They each understand the peculiar nature of the industry, its fluctuations, and the essence of how products sold by CPM to AVX are manufactured, and the timing thereof.

CPM has been one of four suppliers of Tantalum Products to AVX. Immediately prior to the events that are at issue in this case, CPM was supplying approximately 20% of AVXs total tantalum needs.

In the years prior to 2001, AVX and CPM typically executed one- or two-page “Letters of Intent,” which described the annual quantities of Tantalum Products that AVX then anticipated buying from CPM, and the prices that AVX then was willing to pay CPM for those products. These Letters of Intent were simple good faith estimates of AVXs anticipated needs that did not bind AVX to make actual purchases from CPM. In fact, AVX refers to them as requirements contracts, mean[37]*37ing that it only will buy from CPM what it needs of Tantalum Products, presumably up to the amounts stated in the letters. The letters were designed to assist CPM in its production planning. In practice, AVX’s actual purchases frequently varied from the amounts stated in the Letters of Intent. As a result, CPM experienced significant fluctuations in its sales of Tantalum Products to AVX.

Over a period of years prior to mid-2000, CPM attempted to convince AVX to enter into binding, long-term supply agreements for Tantalum Products, but AVX declined to do so.

In January 2000, AVX and CPM signed two Letters of Intent, one relating to tantalum powder and the other relating to tantalum wire. In these letters, AVX stated its “intention to purchase” certain quantities of Tantalum Products from CPM in 2000 and 2001 (the “2000 Letters of Intent”).

During the year 2000, demand for tantalum capacitors experienced a period of unprecedented growth. Orders from some of AVXs customers increased by more than 200%. By the summer of 2000, a tantalum shortage had become evident. Because supplies of tantalum ore, and the production capacity of the manufacturers of tantalum powder and wire, are limited in the short run, the supply of Tantalum Products could not keep pace with the sharply-rising demand for tantalum capacitors. As a result, AVX was not able to procure from its Tantalum Product suppliers the quantity of Tantalum Products that it needed to keep up with the demand for tantalum capacitors. As shortages occurred, the price of Tantalum Products rose.

In August 2000, CPM informed its customers that, beginning in 2001, it would allocate scarce Tantalum Products to those customers who were prepared to enter into binding, long-term contracts with CPM. Letters announcing CPM’s decision were distributed to all of its major customers, including AVX.

Between August and November 2000, AVX and CPM engaged in negotiations with respect to a contract that would govern the parties’ future relationship. Their respective representatives made proposals and counter -proposals.

In the course of these negotiations, a dispute arose as to whether CPM was bound by the 2000 Letters of Intent to supply Tantalum Product to AVX until the end of 2001. AVX insisted CPM was bound and CPM asserted that the 2000 Letters of Intent were not binding.

In early November 2000, the parties reached tentative agreement on the material terms of a five-year contract. Those terms were memorialized in an e-mail message dated November 7, 2000, from John Gilbert-son (“Gilbertson”), President of AVX Corporation, to Thomas H. Odie (“Odie”), Vice President and General Manager of CPM. Gilbertson closed his e-mail, “TOM ... I think we have a fair agreement for both parties . . . hope you agree.”

Consistent with their negotiations, in January 2001, AVX and CPM executed a written supply agreement (the “2001 Supply Agreement”). The 2001 Supply Agreement obligated AVX to buy, and CPM to sell, specified quantities of tantalum powder, wire and a precursor product called “K2TaF7" over a five-year period, at prices set forth in the agreement. Other provisions of the 2001 Supply Agreement address ordering procedures, payment terms, AVXs right to price reductions if CPM were to sell Tantalum Products to AVXs competitors at prices below those stated in the agreement, AVXs right to purchase a share of product resulting from a capacity expansion by CPM, product warranties, scrap purchases and a variety of other issues.

AVX contends that the CPM announcement about needing long-term contracts to insure a supply of tantalum was a conscious exercise of economic coercion by CPM.

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Bluebook (online)
18 Mass. L. Rptr. 36, Counsel Stack Legal Research, https://law.counselstack.com/opinion/cabot-corp-v-avx-corp-masssuperct-2004.