Sara Lee Corp. v. Quality Manufacturing, Inc.

201 F. Supp. 2d 608, 47 U.C.C. Rep. Serv. 2d (West) 1314, 2002 U.S. Dist. LEXIS 27687, 2002 WL 851770
CourtDistrict Court, M.D. North Carolina
DecidedApril 19, 2002
Docket1L00CV01234
StatusPublished
Cited by7 cases

This text of 201 F. Supp. 2d 608 (Sara Lee Corp. v. Quality Manufacturing, Inc.) is published on Counsel Stack Legal Research, covering District Court, M.D. North Carolina primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Sara Lee Corp. v. Quality Manufacturing, Inc., 201 F. Supp. 2d 608, 47 U.C.C. Rep. Serv. 2d (West) 1314, 2002 U.S. Dist. LEXIS 27687, 2002 WL 851770 (M.D.N.C. 2002).

Opinion

MEMORANDUM OPINION

OSTEEN, District Judge.

This case involves the manufacture of shirts. Plaintiff claims that Defendants wanted the shirt off Plaintiffs back. Defendants counter that Plaintiffs representations caused them to bet their shirt, and the subsequent non-renewal left them shirtless. Each party has filed motions for summary judgment. For the reasons set forth -below, both motions will be granted.

I. BACKGROUND

A. Factual Background

Plaintiff Sara Lee Corporation (“Sara Lee”), based in Winston-Salem, North Carolina, is engaged in the business of manufacturing and selling apparel. 1 Defendant Quality Manufacturing, Inc., a holding company organized in the British Virgin Islands, owns Defendant Quality de Sabinas, S.A. de C.V. (together “Quality”), a Mexico-based garment assembly operation. The parties began working together some time in the early. 1990’s. Pursuant to written agreements, Sara Lee would acquire and ship cut parts for shirts to Quality’s facility in Mexico. Quality’s task was to assemble the cut parts into blank sport shirts for sale by Sara Lee. Each of the written agreements executed by the parties had terms of 12 or 18 months and did not require Sara Lee to purchase a minimum number of assembled shirts from Quality. Assembling shirts for Sara Lee was Quality’s only line of business.

According to Sara Lee, throughout the parties’ relationship, Quality had difficulties maintaining its performance due to production inefficiencies, internal quality problems, arid high employee turnover. Quality contends that its problems were *610 precipitated by Sara Lee’s inability to supply Quality with sufficient cut parts to fulfill its obligations. Despite these problems, the relationship lasted until mid-December 2000, when Quality shut down its Mexican plant after being informed that Sara Lee would not renew the relationship.

The problems underlying this case began in the spring of 1999, when it came time to negotiate a new contract. Sara Lee wanted to change the contract to address the issue of who had title to the cut parts and completed shirts, as well as to mandate higher quality standards. Sara Lee claims this new contract was negotiated, while Quality insists it was simply given the new contract to sign without input. Quality signed the contract in March 2000 (“2000 Agreement” or “Agreement”).

Two significant events occurred before the 2000 Agreement was signed. First, in the summer qr fall of 1999, the parties entered discussions about beginning a T-shirt product line at Quality. Sara Lee agreed to sell Quality the necessary equipment for approximately $39,000' and Quality agreed to attempt to begin producing T~ shirts in the first half of 2000. No separate written agreement was executed with respect to T-shirt production. Second, in January 2000, Quality requested a loan of $200,000 from Sara Lee to avoid closing its plant. Sara Lee agreed to lend $100,000, but the incident caused Sara Lee to question the Quality relationship. Sara Lee began to explore placing more of its shirt production with other suppliers.

Shortly after the 2000 Agreement was executed, Quality again asked Sara Lee for money, this time in the form of a gift for $250,000. Quality threatened it would have to close without this help. Sara Lee refused, but suggested as an alternative an increase in the assembly price to supplement Quality’s revenue. Quality came back with a deal whereby the assembly price increased from 9.5 cents per minute to 17.5 cents per minute, and then gradually decreased each month. Sara Lee sent Quality a fax on May 31, 2000, agreeing to the new price schedule. Quality responded by letter on June 1, 2000, stating that it intended to “build sport shirt production to 10,000 — 12,000” dozen over the next three to four months.

After the price increase agreement, the relationship quickly turned sour. Quality claims that it continued to receive insufficient quantities of cut parts to meet its goals, resulting in an abnormally high rate of “suspended dozens,” or dozens that could not be completed because of some problem with the cut parts received. Sara Lee claims that an unexpected decline in the demand for sport shirts coupled with continued quality problems at Quality caused Sara Lee to decide not to renew the relationship with Quality at the expiration of the 2000 Agreement, which expired on December 31, 2000. They informed Quality of this decision first in person and then by letter, dated August 28, 2000. The letter cites an increase in Sara Lee’s internal production capacity as the reason for not renewing the agreement. Quality sent Sara Lee a letter stating that the termination would likely cause Quality to fold, and indeed, Quality shut its plant in mid-December 2000. Quality did not pay its employees severance pay as required by Mexican law.

B. The 200Ó Agreement

Several provisions of the 2000 Agreement are relevant to the court’s analysis. These provisions are summarized below:

1. Applicable Law. The Agreement is governed by North Carolina law.

2. Contract Term. The term of the Agreement was three years and six months, retroactive to July 1, 1997, and *611 lasting through December 31, 2000. The term was renewable by Sara Lee “upon written notice of renewal being given by [Sara Lee] not less than two (2) months prior to the end of the initial term or any anniversary thereof.”

3. Production Schedule. Sara Lee was to provide Quality a production schedule (“Production Schedule” or “Schedule”) each month. The Schedule was to contain the production requirements for the next three months. However, the Schedule was “subject to review and revision each month at [Sara Lee’s] sole discretion .... ”

4. Termination by Quality. Quality could only terminate the Agreement if Sara Lee failed to pay or became insolvent. The Agreement states that Quality would have no claim for damages for non-renewal of the Agreement unless it was terminated for one of these stated reasons.

5. Merger Clause. The Agreement also contains a standard merger clause stating that it is the entire agreement of the parties, that changes can be in writing only, and that the Agreement supercedes any previous agreements.

6. Payment of Employees and Compliance with Mexican and U.S. Law. The Agreement placed the responsibility for compliance with all applicable employment law on Quality and required Quality to indemnify Sara Lee for any liabilities arising from non-compliance.

C. Procedural History

Sara Lee initiated this suit in December 2000, and Quality asserted several counterclaims. Both parties later amended their claims. Sara Lee’s amended complaint asserts three claims. First, it asserts that Quality breached the contract by failing to pay its employees the statutorily required severance pay, by demanding a change in the price term of the Agreement, and by failing to meet the quantity ■ and quality requirements set forth in the Agreement. Second, Sara Lee asserts a claim for unjust enrichment.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Crescent Univ. City Venture, LLC v. Ap Atl., Inc.
2019 NCBC 46 (North Carolina Business Court, 2019)
Gr&s Atlantic Beach, LLC v. Hull
2011 NCBC 37 (North Carolina Business Court, 2011)
Rogers v. Unitrim Auto and Home Ins. Co.
388 F. Supp. 2d 638 (W.D. North Carolina, 2005)

Cite This Page — Counsel Stack

Bluebook (online)
201 F. Supp. 2d 608, 47 U.C.C. Rep. Serv. 2d (West) 1314, 2002 U.S. Dist. LEXIS 27687, 2002 WL 851770, Counsel Stack Legal Research, https://law.counselstack.com/opinion/sara-lee-corp-v-quality-manufacturing-inc-ncmd-2002.