i would like to reserve three minutes for a bottle but this is an interesting case in that it is a take or pay contract with terms that in the beginning were favorable to both parties what happened in this market was unprecedented the chinese came in and dumped solar panels on the market which crashed both the solar panel market and the poly silicon market this contract covered this poly silicon in the market which is used to make the so there were trade cases filed in those trade cases the us found that china the u s and the e u found that china was deliberately dumping solar panels on the on the us and e u market and that it had led to an unprecedented drop in price over the whole market many of the people that were in this business went bankrupt we raised three issues on appeal the first is involves an issue of german law and that is its fundamental law that the court cannot put itself in the position of enforcing what is in a legal contract now built into this contract where the take or pay provisions and also a provision that would not allow saxon to resell the poly silicon under edu in german law that is referred to as a hard core restriction and a hard core restriction makes the contract illegal per se we raise this issue country in the in the e u and the so in the u a in the us of a day the courts michigan courts have ruled this way and the federal courts appeal is what does it matter if you're creating ill and illegality in germany or in the us if the courts will not be a party to any trust violation whether it whether it's a foreign law that's involved or whether it's a us law it's and what is the best case that you would say for that  and give it to us and you're about all let me let me do that i give you four cases that i just don't have a make or pay provision in itself is not illegal not at all it would not be illegal under law it would not be illegal under u s law it is the way the judge ruled and that was a mistake the the two the two or injured in inextricably intertwined and can't be separated you say that what what well we produce we presented we had the probably the top lawyer judge in germany submit affidavits on german law and he submitted an affidavit to the court and included cases from the it's not a court there were it's an organization that determines these matters and it says it is per se illegal and it can be divided that that be current yes yes if it's it's a the parties did that after works but because these courts are are there to try to mediate and do that that couldn't be done in this situation not well because what happens is as soon as this contract was accelerated and terminated the harm the the harm in under the german law was automatically done because the product was withheld from the market the pricing by him locke was protected and the competition that would have been if this product could have been taken and resold could never happen and that's the harm under the e u and german law that is that's what they're seeking to prohibit so the contract is accelerating meaning your client has to pay the full amount yes but you didn't get the product let me i'll back up and give you a little bit of fact  we took the product as long as we possibly could when the price got to the point first of all we couldn't sell our solar panels because we couldn't cover or we couldn't cover our indirect cost the market was so but the thrust of my question which is perhaps not a good one is if you could have taken the product and stored somewhere and then later when the market for solar panels changed then that would be fine no if it were tomatoes of course tomatoes would rot and that would not be any good but is this a product that you could have taken and stored under the contract as it was interpreted we did that as long as we could we we don't like couldn't you do it for the whole we would have been we would have been in a position it would have bankrupted us frankly but you had to pay anyway we couldn't at some point we couldn't pay either how much did the market drop from the contract about initially it dropped i think sixty percent it was dramatic it's since dropped more there's again another trade case recently  filed because the chinese have continued to dump on more a lot less yes let's say the chinese did exactly what they did but instead of illegally dumping they just came out with a more efficient process of producing polysilicon hear when the same climate what impracticability we did it on the impracticability which was our second order we would not be here on the same claim if the chinese had come into the us market and competed fairly that that is not impracticability ok so you're impracticability is based solely on the fact that it what they did was illegal it was illegal in other words they were selling solar panels that were being the chinese government was basically propping them up so they could sell them at a price and they deliberately targeted the u s market to take over the u s market what if that's your theory what's your case that supports that that the market drop to the illegality of a chang cases i recall it was the an index used to determine the price of electricity and that was being manipulated well but the whole idea of a contract was to base it on the fair market value of that index and the parties were manipulating the index that's a little different well here here are you agreed you want to fix price for this polysilicon that was the whole idea of a contract but but but we wanted a fixed price in a functioning market both both parties you know but couldn't you have put that in the contract the next price pertains only as long as and then put in various conditions i guess in hindsight you could put anything after i mean and i can tell you my firm didn't  contract so the you is a generic you but bed in general that's the response to anybody in a contract dispute we read the contract we apply the contract but there are add that things happen later on but you're saying illegality is  a separate matter but i still i still get back to the question why why under the contract terms you couldn't have paid the penalty that liquidated damages and and received the product and that's a big if maybe the damages didn't allow you to get the product i don't know it this point where we could have done that but a lot of things a lot of things happen remember this contract contemplated and we paid one hundred eighty million dollars upfront so that him lock could build its new facility into the sea and upgrade its facility in michigan that did not happen again because of these market conditions it never happened and they retained our hundred eighty million dollars for the first five years or so this contract yob did fine because you it buying it for less than the i mean the contract price was and this is what the parties contemplated up just for us course and follow why it didn't get these the facilities didn't get built because there was no demand if this point demand driving also couldn't produce poly silicon at a price that made any sense and so it was cheaper for them to not build out the facility and keep the money in fact they were going to didn't require building with that money it did not but it was contemplated by the parties and they were told that's what the money was being used and that part but it there's no the fact that you're out the money it's not compensable here under the contract because of some violation polysilicon was it such a low supply at the beginning of this period that companies were desperate to get  their expert says that your client benefited over five hundred million dollars in the early years by getting it for less than the spot price but they also made a profit in those years too and they also were getting free financing for it for the work they were doing in tennessee so it's not a one sided thing here they were they they got a lot of money as a matter of fact and some up real quick as a matter of fact they made a conscious decision they were there every day they were negotiating with all the boxers and trying to come up with some way to work this out and at some point they made the decision that they were going to be in the business of suing people does they would make more money by enforcing this contract then they would buy renegotiate contr operations judge gilman you've got this correct spot on this is not a hard case i want to start just by clearing up the record here the expansion happened my client hemlock spent two point two billion dollars on a plant in tennessee state of the art these are capital intensive high tech facilities that are requiring expertise in their money i mean i was asking whether  know that were the way the contract works is the all of the customers made advance payments they earn back those advance payments with each purchase and so actually it's sort of a it's an advance pay that they earn back if the customer completes the ten years supply period it has earned back all of those advance payments they've conversely they're a form of revenue for us we spent a billion dollars building out tennis building out michigan and two point two building billion building out tennessee all of that was a loss when customers like sox and others defaulted on their contracts hemlock was forced to close tennessee was ready to go we had to take a two point two billion dollar loss and lay off four hundred people in tennessee the suggestion that that expansion never happened is simply false and your point is in the record yes it is and the district court correctly recognize that and to let me just sort of through it's important for the court to understand where we are in this case the record is clear in the district court recognized that at in two thousand and five this customer and others beat down the door begging him locked to expand its facilities to supply solar polysilicon hemlock was hesitant to do that it had had bad experiences before and they worked out a structure where the allocation of market risk would be shared fairly and so in exchange for advance payments hemlock agreed to supply for ten years our contract price with this customer for those ten years started at around fifty dollars and dropped down slowly to the expected i think the was supposed to be around forty four dollars but the point is to judge gilman's point that market price reached four hundred dollars three four years into this thing you are correct  hundred and ten billion dollars of cost savings when the chinese allegedly flooded this market allegedly unfairly the market did start to drop debate that whether they did it or not i mean i don't know if there is a global oversupply correct i don't i'm not here to apply whether it was legal or illegal is correct if there is a trade war and there's been untied dumping duties applied by both sides by both countries what about the argument that your opponent raises that part of the contract was illegal ok we'll get to that then again you're exactly correct a couple things we need to square away we are here enforcing only the liquidated take or pay damages cla the bar to resale has nothing to do with this case they never asked to resell a product it's never been a part of the record has absolutely nothing to do with this they make a claim about this at all in terms of any of the that the united states supreme court has made clear that where the clause being sued upon does not offend antitrust then that clause will go forward and an antitrust affirmative defen happen antitrust affirmative defenses raised in bread and butter breach of contract cases like this are disfavored by the united states supreme court in this case the only thing being sued the supreme court precedent is look and and satisfy himself are they in extra completely intertwined and here he correctly concluded they are not they have nothing to do with one another and the court explained in great detail why that is so so so the anti resale provision could be excised from the contract that the theory it could be it's not at issue in this case but let me address something else the council said in the  german regulatory cases which by the way are by definition preliminary they were settled out of the two of those clauses together are not the hard core restriction the judge ludington correctly read those cases he said w apparently under the e u that regulator thought that the barter resale that could under certain circumstances be a hardcore restriction and so but but the key piece being there could and the regulator in those cases go on to talk about market conditions that would have to align in such a way that those two provisions working together with the offending border reseal could be a hardcore restriction start just with the with the hardcore restriction out but judge gilman you've got a correct so what ended up happening there the parties reach a settlement they still have both of the companies that have the board of resale said fine if that piece of this falls away under e u law is there any problem there the regulator said no that's fine take your take or pay and go off and and that's how it ended in the take a paid continued in full force how did this work in terms of the liquidated damages of a very large amount you need to be paid under your theory by your opponent what do they get do they product here's how this works and the large amount it's just it's the amount it's the full term commitment that they made to either take or pay for the product here's how this works there's a suggestion here that but you know they did they were that they were want to take product that they they just couldn't take it that is not what happened here when the market began to approach the contract price we got a letter from stockton that said by the way you need to lower our price because if you don't the moment that the market price hits the contract praise these people these contracts are not worth the paper they're printed on that's a quote that is cited by the court and it's in our breeze that's the notice we got after five years they've made their five hundred million dollars of cost savings there's five years left to go in the contract we get a letter that says by the way we're going to be done the moment this thing turns out that is what they did shortly thereafter we negotiated a couple of amendments we drop prices for interim periods of time and then they just stopped purchasing this is not a situation where there's you know no honest effort by the customer to try to work this through we've got to know that  reach did they ever ask for a product to be given to them in exchange for their making the liquidated damages no human no no there was no such request this is a deliberate breach there's no defense to liability here there's a certain appearance of unfairness in forcing the other company to make a liquidated damages payment equal to the quantity times the price of the contract without giving them the product that they are theoretically paying for well so if you're asking about is a take or pay provision fully enforceable and we say it is fully enforceable it could be fully enforceable if if they pay for and get the amount that they are supposed to have been paying right now but judge moore that's not this contract that's not the michigan law i mean that's a hypothetical world of this contract there's a provision that that either says or implies that they do not get the product this is the take part of the take or pay this is clear is a bill where it went where would you have me section five i know it's cited in our brief judge i'm happy to take it out but so then he and what and you say michigan law is clear is there a case to have me look at a whole host of cases the judge letting to rely on off the top of my head but let's get so i think judge moore where you're going with your question is is this a penalty or is this not the penalty that is there argument here just letting to correctly found it is not the analysis of whether a liquidated damage clause is a penalty focus at the time of contracting not later in time you don't look at the time they reach it asks the question was it you know uncertain enough the potential damage to hemlock in this situation so that when the parties agreed and by the way sophisticated parties in four contract four separate times and four separate years agreed to this term the question is was it reasonable and judge ludington correctly found it was reasonable if you look at it this way hemlock is making it seems to me that you could say that it is not reasonable if the take or pay provision involves hundreds of millions of each year and no product is given in return that that just seems totally unreasonable you could say that well but but if there are cases that if there are cases that are binding through today continue to perform under substantially identical contracts that we're here because this customer decided that when it didn't like the price anymore it tore the contracts up and threw him at this that happened with five years left to go and what had is committed to making billions of dollars investment hiring hundreds of people all of the infrastructure that goes with that hemlock takes on a huge red production risk we had to be able to supply this high tech product for ten years the buyer assumes the market risk what my damages were were uncertain at the time because of all of the factors that go into this just letting things explains why they argue that you know that lost profits want to be the measure of damages here lost profits juggling to correctly recognized in a take or pay context don't fully addressed at the time this deal is struck what the potential damages were and lo and behold we have a situation as i've described to you where my client has written off more than two point two billion dollars of losses in the state of tennessee laid off four hundred people that's the kind of sort of an ascertainable with any specificity damage that can occur down the road which is exactly the allocation of risk that is is contemplated i doubt if you talk about ten years i mean were there were extended for five more i want from two thousand and five to two thousand nineteen the well there so in order to build out the plant your honor i don't recall the specific time frames here but so for example the first one of these agreements signed in two thousand and five there is a year sometimes two year lead time because these desoto happen all intensive these are very high tech facilities so we're building in those first years of the contract and then the supply period is for ten years but your honor mentioned it's fifteen years actually not it's eighteen years supply period remember the year two thousand and nineteen was mentioned twenty one thousand would have been the last year had they they stayed with the program that's correct the record show whether or not your opponent actually asked for the production of the product in exchange for the payment that no because that never happened the record does not show that they asked is that your answer or the record shows that they didn't  know the record shows that they came to us and demanded a unilateral price drop and then the record shows that when they weren't satisfied with that they sent us a note that said guess what we're done we're tearing your contracts up the record will show you these firmed of defenses that we're looking at here these are the scraps the thrust of this whole litigation were premised on other defenses their c e o testified that we had amended the contract orally we had amended it by by our performance we had a standstill agreement in place we had agreed to different quantities judge ludington parse this record very carefully and said wait a minute those bits of testimony are contradicted by documents that come out of your file and by statements baited by you or other senior executives that's the gist of this whole case we're now down to a situation where the supreme court has said this is a classic example this is straight for breach of contract case michigan law requires this panel to apply the contract as written and the supreme court says when you've got this situation we're not going to hear about antitrust offenses much less european antitrust offenses there is no case where you antitrust law as an affirmative defense has been asserted it would be unprecedented to do so here and you're actually an able to do so here recently because the provision that's being sued upon has nothing to do with the bar to resale the cases that they're they're showing you no different the bar to resale ok they call that a hardcore restriction that was jettisoned and everyone went on their merry way those illustrate and support and judge ludington explained in his opinion exactly why actually those cases support us there's an argument let me just finish on this point you have a red light on so if you want to say one sentence that's fine but you know there's nothing in the united states supreme court precedent that says that the analysis  kaiser steel is different if the defendant is asserting foreign law you cannot do that because the the this supreme court precedent here requires an examination of whether or not the clause sued upon offen into trust violations this one admittedly does not there's a paragraph that you've said thank you very much thank you a couple of points first the administrative actions are being misrepresented here there is no calculation involved in it  f the court to read those it is a it is a absolutely prohibited restriction it is a hard core restriction it's called the court the panel went on to explain with you on the on the contract side of it the content of restrictive side your honor you know they want to say they're only suing us on a contract but they're asking the court to become involved in doing something that would be illegal under the law and the the administrative cases are absolutely clear on that the f d a we submitted from the expert is absolutely clear on second they're not just asking you to award they asked for and they asked us to give assurances a payment couldn't do we tried they then accelerated the contract and canceled it that's what they did because at that point they decided it was more profitable to them to sue in the contract and that brings up the penalty issue these damages are all out of proportion to what they actually to what they actually occurred we just  expert another expert report that they had but all of this is before judge letting yes you know where to get my answer yes in then he had my questions really he he answered it but he did he ignored that because he said we this impracticability i'll sum up really quickly this is very very unprecedented what happened if there was ever a case where there was something that you know if you look at the restatement of contracts they talk about extraordinary things that might affect the market this is a case where the jury should have been allowed to decide once were ves facts that we presented did they fall into that anticipated whether it is a reasonable expectation of the parties that would be a jury question thank you it's just wondered if the parties have have are opposed or are willing to there was a point where you were trying to negotiate are all those is that out of the of the question any more