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Horicon Foods, Inc. v. GEHL Foods, LLC

United States District Court, E.D. Wisconsin

September 15, 2016

HORICON FOODS, INC., Plaintiff,
v.
GEHL FOODS, LLC, DAVID SCHUMACKER, and DAIRY=BOND, LLC, Defendants.

          DECISION AND ORDER

          LYNN ADELMAN District Judge.

         This is an action for breach of contract and tortious interference with a contractual relationship. The plaintiff, Horicon Foods, Inc., alleges that one of the defendants, Gehl Foods, LLC, breached a contract in which it agreed to buy ingredients for cheese sauces from Horicon. Horicon also alleges that David Schumacker, a consultant hired by Gehl, and his company, Dairy=Bond, LLC, tortiously interfered with Horicon's contract with Gehl by advising Gehl on matters related to the contract. Before me now are motions for summary judgment filed by the defendants.[1] In this order, I also address several motions to seal portions of the summary-judgment record that have been filed by Horicon, Schumacker, and Dairy=Bond.

         I. BACKGROUND

         Gehl Foods manufactures processed, mostly dairy-based food products, such as cheese sauces. Until recently, Horicon Foods supplied Gehl with three ingredients for its cheese sauces: an enzyme modified cheese known as “Special 23, ” and two cheese flavorings. This suit arises out of Gehl's decision to stop purchasing these ingredients from Horicon. Horicon contends that the parties' contract requires Gehl to purchase all of its requirements of these ingredients from Horicon, and that Gehl has breached the contract by receiving these ingredients from another source. Horicon also alleges that Gehl's consultant, David Schumacker, and his firm Dairy=Bond, interfered with the contract between Horicon and Gehl by advising Gehl to receive the ingredients from another source. The following facts are based on the materials in the record that I may consider in connection with a motion for summary judgment under Federal Rule of Civil Procedure 56(c), construed in the light most favorable to Horicon.

         The relationship between Gehl Foods and Horicon began in the 1980s, when John Gehl, Gehl Foods' former president, met Robert Studer. Over the years, Studer helped develop products for Gehl Foods. In approximately 2010, John Gehl informed Studer that Gehl Foods was having issues with its then-current supplier of enzyme modified cheese. In response, Studer proposed that Gehl Foods make its own enzyme modified cheese “in house.” John Gehl told Studer that Gehl Foods was not equipped to do this, and he suggested that Studer form his own company to develop and produce enzyme modified cheese for Gehl Foods. Studer, who was then 76 years old, agreed to come out of retirement for this purpose. Studer then incorporated Horicon Foods and began developing an enzyme modified cheese for Gehl.

         By August of 2010, Horicon had developed an enzyme modified cheese that met Gehl Foods' requirements. Gehl Foods decided to begin purchasing this product from Horicon. However, Gehl Foods did not immediately agree to purchase all of its enzyme modified cheese from Horicon. Instead, Gehl Foods thought that it would be best if it had two suppliers. John Gehl thus informed Studer that Horicon should produce two loads of enzyme modified cheese per month, which was one-half of Gehl's monthly demand for that product. Gehl would then purchase another two loads per month from a different supplier. On November 4, 2010, Gehl Foods and Horicon entered into a contract in which Gehl agreed to “place every other order for purchase of” enzyme modified cheese with Horicon.

         By the end of 2011, Gehl Foods had decided that it would begin purchasing all of its enzyme modified cheese from Horicon. It also decided to begin purchasing certain cheese flavors from Horicon. On April 16, 2012, the parties entered into the contract that is at issue in this suit. The contract provides that Gehl would purchase “enzyme modified cheese” and “flavors” from Horicon. See First Amended & Restated Purchase Agreement [hereinafter “Contract”] at 1, ECF No. 13-3. It states that Gehl would purchase from Horicon “quantities of products manufactured and packaged by Horicon in accordance with the specifications set forth in Schedule A.” Schedule A, in turn, is divided into three parts: A-1, A-2, and A-3. Schedule A-1 is entitled “Specifications for EMC, ” and it describes the product as “Special 23-H Cheese in 40lb blocks.” Schedule A-2 is entitled “Specification for Cheese Flavor #93-2003, ” and Schedule A-3 is entitled “Specification for Cheese Flavor #93-2101.” The contract contains a section entitled “EMC Exclusivity and Production Commitment.” Id. § 3. Because this provision of the contract is central to the parties' arguments, I quote it in full:

3. EMC Exclusivity and Production Commitment
a. Effective four months after the Effective Dated: Gehl agrees to purchase, and Horicon agrees to manufacture and sell, 100% of Gehl's requirements of the enzyme modified cheese identified in Schedule A (“EMC”), in quantities specified in Gehl's purchase orders.
b. Gehl is not obligated to purchase any minimum amount of EMC beyond its actual business requirements.
c. Limitations on exclusivity: Gehl could receive EMC from another source if, for any reason, any of the following occur:
i. Horicon rejects or otherwise fails to accept an order placed by Gehl;
ii. Horicon is unable to deliver 100% of Gehl's requirements in any 30 consecutive day period;
iii. Horicon delivers non-compliant product and cannot cure the problem within the timeframe needed by Gehl, or if the problem is recurring; or
iv. Horicon is in breach of the Agreement.

Id. Another provision of the contract that is important to this case is one entitled “Development.” Id. § 19. It states:

19. Development. Horicon acknowledges that the products being developed, used or sold by Horicon, or that may in the future be developed, used or sold by Horicon, may be similar or identical to existing products or products under development at Gehl at any time, and that nothing in this Agreement is intended to or shall prevent Gehl from continuing to develop, produce, use or sell any products.

Id.

         The contract does not require Gehl to purchase any minimum amount of product from Horicon. See Contract § 3.b. When the parties began to perform under the amended contract, Gehl routinely ordered four loads of enzyme modified cheese from Horicon each month. However, a few months later, Gehl reduced its monthly orders. Between September and December 2012, Gehl ordered only three loads per month. In March 2013, Studer asked John Gehl if the decline in orders was caused by a decline in sales of its cheese sauces. Gehl told Studer that he was not aware of any drop in sales. In April or May 2013, Gehl Foods informed Horicon that from now on its monthly order of enzyme modified cheese would be 3.2 loads per month rather than four loads. When Studer asked Gehl Foods' chief financial officer why Gehl would need only 3.2 loads per month, he responded by stating that those were Gehl's needs.

         On October 4, 2013, John Gehl and Studer met for lunch. At that lunch, Gehl told Studer that Gehl Foods had retained Schumacker and Dairy=Bond as consultants, and that with their help, Gehl Foods had been able to develop a product to replace the enzyme modified cheese that it had been purchasing from Horicon. John Gehl also informed Studer that Gehl Foods had retained another company, Avoca Bioprocessing Corporation, to manufacture the substitute product for Gehl. Gehl informed Studer that Gehl Foods had been purchasing the substitute product from Avoca for about one year, and that this was why Gehl Foods had reduced its orders of Horicon's products in September 2012. Gehl also stated that Gehl Foods was in the process of switching over the biggest portion of Gehl's cheese-sauce production from Horicon's product to the substitute product. Gehl told Studer that Gehl Foods' use of the substitute product had resulted in considerable cost savings.

         After the lunch meeting between Gehl and Studer, Gehl Foods further reduced its purchases of enzyme modified cheese from Horicon. Between November 2013 and October 2014, Gehl ordered a total of 16 loads of enzyme modified cheese from Horicon. Between November 2014 and May 2015, Gehl ordered only four loads from Horicon. In May 2015, Gehl told Horicon to stop production of the enzyme modified cheese altogether.

         During the time period that Gehl Foods was reducing its orders of enzyme modified cheese from Horicon, Gehl was also reducing its orders of the two cheese flavors from Horicon. First, Gehl ceased purchasing the flavor described in Schedule A3 to the contract because Gehl no longer made the product that used the flavor as an ingredient. Second, Gehl reduced and eventually eliminated its orders of the cheese flavor in Schedule A-2 to the contract because Gehl, with help from Schumacker and Dairy=Bond, developed a substitute for that flavor and contracted with Avoca to manufacture it.

         With no orders from Gehl Foods for enzyme modified cheese or cheese flavors, Horicon has no active customers and no income.

         According to Horicon's evidence, Gehl Foods began its efforts to develop its own enzyme modified cheese and cheese flavors in 2009. On February 1, 2009, Gehl entered into a contract with Schumacker and Dairy=Bond for consulting services. The contract states that the scope and nature of the consulting services to be provided would be determined “from time to time” by the president and chief executive officer of Gehl, but that the scope of the services would at least include “the development of specialty dairy ingredient technology.” Consulting & Licensing Agreement § 1.2.[2]Internal notes from Gehl and Dairy=Bond suggest that they began work on developing a replacement for Special 23 in March 2009. See Decl. of Timothy Lecher Ex. 3, ECF No. 59-3. At this time, Gehl was purchasing Special 23 from sources other than Horicon. By late 2011 or early 2012, Gehl and Dairy=Bond had produced test batches of a substitute product. Id. Ex. 5. Research notes from March 2012 reflect that, in addition to working on a substitute for Special 23, Gehl and Dairy=Bond were also working on substitutes for the two cheese flavors that Gehl was then purchasing from Horicon. Id. Ex. 7. In June ...


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