UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN

NORTHERN DIVISION

HEMLOCK SEMICONDUCTOR 

CORPORATION, et al.,

Plaintiffs,

v.

KYOCERA CORPORATION,

Defendant.

KYOCERA CORPORATION,

Counterclaimant,

v.

HEMLOCK SEMICONDUCTOR 

CORPORATION, et al.,

Counterdefendants.

Case No. 1:15-cv-11236-BC

Honorable Thomas L. Ludington

Honorable Patricia T. Morris

JOINT LIST OF UNRESOLVED ISSUES FOR

JUNE 29, 2016 DISCOVERY HEARING

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I. CERTIFICATION

This is a dispute between Hemlock Semiconductor Corporation and 

Hemlock Semiconductor, LLC (collectively “Hemlock”) and Kyocera Corporation 

(“Kyocera”) related to four supply agreements. On June 29, 2016, the Court will 

hear Kyocera’s motion to compel Hemlock to produce documents. (Doc. No. 

104.) The parties met and conferred by telephone conference on June 14, 2016 

from 1:00p.m. Eastern time until 2:00 p.m. Eastern time and attempted in good 

faith to resolve the issues raised in the motion and related issues. 

II. UNRESOLVED ISSUES

A. Unresolved Issue No. 1: Hemlock’s Post-2008 Cost and Financial 

Information

1. Kyocera’s Position: Kyocera is Entitled to 

Documents Related to Hemlock’s Actual Damages

As Kyocera explained in the motion, this case involves four polysilicon 

supply agreements entered into by Hemlock and Kyocera (the “Agreements”). 

Each Agreement states that Kyocera must buy a certain quantity of polysilicon 

each calendar year for ten years, and each has a “take-or-pay” clause that purports 

to allow Hemlock to invoice Kyocera for unordered quantities of polysilicon, at 

full price, without having any obligation to deliver the product. Finally, each 

Agreement has an acceleration clause that purports to make Kyocera liable for the 

full price of all scheduled polysilicon orders through the full term of the 

Agreement—as late as 2020—if Hemlock elects to terminate the Agreement.

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Kyocera filed that motion because Hemlock has refused to produce any

documents related to its actual damages. Hemlock’s position is that actual 

damages are not relevant because the “take-or-pay” clauses and related 

acceleration clauses in the parties’ contracts determine the measure of damages.

On that basis, Hemlock has refused to provide any documents dated after 

November 2008 related to its costs, revenues, or finances—that is, the documents 

needed to show the costs that Hemlock avoided as a result of Kyocera’s decision 

not to order polysilicon in 2015. Hemlock’s position is indefensible. Kyocera has 

asserted a counterclaim seeking a declaratory judgment that the take-or-pay clauses 

and acceleration clauses are unenforceable. (Doc. No. 89.) Hemlock has answered 

the counterclaim; it has not filed a motion to dismiss. (Doc. No. 101.) After those 

pleadings were set, Kyocera substantially narrowed its prior requests for 

production of documents to focus on the issues now in dispute: the enforceability 

of the take-or-pay and acceleration clauses, and the damages that would flow to 

Hemlock if those clauses are unenforceable. 

Hemlock’s actual damages are relevant to both of those issues. First, 

Hemlock’s actual damages are critical to determining whether the take-or-pay and 

acceleration provisions are enforceable. Hemlock is incorrect that the 

enforceability of the provisions at issue depends solely on the facts as they existed 

when the Agreements were executed. Under Michigan law, the enforceability of a 

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liquidated damages clause depends, in part, on “actual harm,” which is necessarily 

determined in reference to the damages a party suffers when a breach occurs. 

Mich. Comp. Law § 440.2718(1) (“Damages for breach by either party may be 

liquidated in the agreement but only at an amount which is reasonable in the light 

of the anticipated or actual harm caused by the breach . . . .” (emphasis added)); 

accord Northcentral Telecom, Inc. v. AT&T Servs., Inc., 2011 WL 2148572, at *3 

(W.D. Mich. May 30, 2011) (“[T]o show that a liquidated damages provision is 

unreasonable because the actual damages incurred were much less than the amount 

contracted for, a defendant may be required to prove what the actual damages 

were.” (Internal quotation marks omitted)). 

Second, if the Court concludes that one or both of these provisions is not

enforceable, actual damages will be relevant because they will determine what 

Hemlock recovers. Hemlock cannot avoid damages discovery simply by 

assuming that it will prevail on liability. See Sentis Group, Inc. v. Shell Oil Co., 

763 F.3d 919, 926 (8th Cir. 2014) (a party cannot, “by [its] sole insistence, declare 

evidence undiscoverable and irrelevant merely because it does not fit into [its] own 

theory of the case”); Am. Air Filter Co., Inc. v. Universal Air Prods., LLC, 14-CV665-TBR-LLK, 2015 U.S. Dist. LEXIS 80409, at *3 (W.D. Ky. June 22, 2015) 

(“The scope of discovery does not contract to the Defendant’s theory of the 

case . . . Neither party can restrain another’s otherwise-proper discovery because 

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that discovery exceeds its theory of the case.”) (citing U.S. v. 216 Bottles, 36 

F.R.D. 695, 699-700 (E.D.N.Y. 1965)). Nor can Hemlock avoid damages 

discovery by contorting the Michigan U.C.C. to argue that avoided production 

costs do not reduce Hemlock’s damages. Hemlock’s argument is incorrect. But 

even if Hemlock were right, that would not be a basis for denying discovery on a 

live issue in the case that Hemlock has not moved to dismiss. 

The factors in Rule 26(b) support an order directing Hemlock to produce 

documents related to Kyocera’s actual damages. 

1. Importance of the issues at stake in the action. This discovery is 

crucial to the central issue in this litigation: whether Hemlock’s take-orpay and acceleration provisions are enforceable. This is a critical issue to 

both parties in the case, as it could change that amount at stake by 

hundreds of millions of dollars.

2. The amount in controversy. This factor favors the limited discovery 

Kyocera is requesting. Hemlock seeks over $180 million dollars and 

Kyocera asserts that the acceleration provisions allow Hemlock to 

demand over $1 billion dollars.

3. The parties’ resources. The parties’ resources should not be an issue 

with respect to these discovery requests: Hemlock has significant 

revenue in its own right, and it is owned by joint ventures of The Dow 

Chemical Company, Corning Inc. and Shin-Etsu Handota.

4. The importance of the discovery in resolving the issues. As explained 

above, the discovery sought is critically important to resolving the case. 

It is necessary to determine the key issue in dispute – whether the 

liquidated damages provisions are enforceable – and the damages at stake 

if Kyocera prevails on that dispute.

5. Whether the burden or expense of the proposed discovery outweighs 

its likely benefit. The burden of producing information related to actual 

damages is limited, and in no way could outweigh its benefit. Rather 

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than seeking “all documents” related to Hemlock’s actual damages, 

Kyocera has significantly narrowed its discovery requests to seek 

information “sufficient to show” those damages. Surely Hemlock has an 

online accounting system that tracks its costs, revenues, and the other 

information requested. 

6. Whether the discovery sought is cumulative or duplicative. The 

discovery sought is not cumulative or duplicative. Hemlock has simply 

refused to produce any information related to its actual damages, and it 

has now also refused to make witnesses available to testify on that 

subject.

7. Whether the discovery sought can be obtained from a more 

convenient, less burdensome, or less expensive source. The discovery 

could not be obtained from another source that is more convenient, less 

burdensome, or less expensive. Hemlock’s public financial statements 

lack the detail needed to perform an accurate damages analysis.

8. Whether the party seeking discovery had ample opportunity to 

obtain the information by discovery in the action. Kyocera first 

served broader requests that sought most of the requested information on 

July 23, 2015. When Hemlock refused to produce the requested 

information, Kyocera narrowed its requests during an initial series of 

meet and confer discussions in the summer and fall of 2015. Kyocera 

further narrowed some requests at issue here on May 10, 2016.

In sum, Hemlock cannot withhold the discovery that Kyocera needs to 

litigate critical issues in the case. The Court should order Hemlock to produce 

documents related to its actual damages, as requested in Kyocera’s narrowed 

requests for production.

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2. Hemlock’s Positions: 

a) Under Michigan Law, Liquidated Damages 

Provisions Are Evaluated As Of The Time Of 

Contracting—Not At The Time Of Breach—So 

Hemlock’s Post-2008 Cost And Financial Information 

Is Irrelevant; and

b) Hemlock’s Post-2008 Financials Are Also Irrelevant 

To The Alternative Contract-To-Market Measure Of 

Damages Advanced By Kyocera Because That 

Alternative Measure Already Takes Into Account An 

Aggrieved Seller’s Production Costs

Rather than a short and plain statement listing the unresolved issues, 

Kyocera’s draft of this “joint” submission that it sent to Hemlock contained seven 

full pages of argument that simply repeated the content of Kyocera’s moving 

papers. Hemlock does not believe that is what the Court intended for this joint 

statement and respectfully refers the Court to its Opposition, filed on June 17, 2016

(Dkt. No. 112) for a complete statement of Hemlock’s positions. 

In short, Kyocera ignores that Hemlock has agreed to produce responsive 

documents concerning its production costs and financial information for the period 

up to and including November 2008, which is the effective date of the last of the 

parties’ four Supply Agreements at issue. Michigan law, as announced by the 

Michigan Supreme Court and widely applied, holds that a court’s assessment of a 

liquidated damage provision is determined by the conditions existing at the time 

the contract is executed—not when the breach occurs. Accordingly, the documents 

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sought by this motion—i.e., all of Hemlock’s post-2008 production and financial 

data—is irrelevant to this case. 

While Kyocera points to a single case from the Western District of Michigan 

in arguing that a non-breaching party’s “actual” damages are relevant to an 

analysis of a liquidated damages provision, Kyocera omits that the decision it cites 

applied Texas law, which is materially different from Michigan law on this exact 

point. Indeed, in an action involving another breaching customer of Hemlock, the 

Saginaw County Circuit Court denied a motion to compel the very post-2008 

information that Kyocera seeks here, applying Michigan law to hold that the post2008 information is irrelevant to the parties’ claims and defenses. 

Kyocera next argues that if it prevails on its counterclaims and the damages 

provisions at issue are declared unenforceable (despite the fact that Michigan 

appellate courts and this very Court have upheld their validity and enforceability), 

then Hemlock’s “actual” post-2008 expenditures are relevant to an alternative 

contract-to-market measure of damages advanced by Kyocera. But even under 

Kyocera’s alternative contract-to-market theory, damages would be calculated by a 

simple comparison of the parties’ contract price and the prevailing market price at 

the time of delivery, without reference to any of Hemlock’s production costs. 

Kyocera claims that Hemlock’s production costs should be subtracted under the 

UCC’s “contract to market” damages calculation as “expenses saved.” But 

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manufacturing costs are already built into a product’s market price—a point made 

clear by courts and commentators alike—and Kyocera’s argument defies logic. 

In sum, Hemlock is not resisting discovery premised on “its own theory of 

the case.” Rather, settled Michigan law that governs Kyocera’s legal theories 

dictates that the discovery it seeks is irrelevant.

The Federal Rules of Civil Procedure state that in order to be discoverable, 

material must be both (i) relevant to any party’s claim or defense, and (ii) 

proportional to the needs of the case, considering the eight factors set forth Fed. R. 

Civ. P. 26(b)(1). Here, the eight factors are of no consequence, because the 

discovery Kyocera seeks fails the threshold test of relevance. And, in any event, 

the irrelevance of the discovery means that Kyocera’s requests do not meet the 

primary factors related to proportionality: (i) it fails to speak to any issue at stake 

here, “important” or otherwise; thus (ii) has no role in “resolving” any live issue in 

the action; and (iii) its burden and expense consequently outweigh its (nonexistent) 

benefit. Kyocera made a business decision to, without justification, breach a 

billion-dollar contract. The magnitude of its breach and liability to Hemlock does 

not entitle it to pursue irrelevant materials or engage in a “fishing expedition”

under the guise of “proportionality.” 

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B. Unresolved Issue No. 2: Information About Costs Incurred in 

Connection with Hemlock’s Plant Capacity Expansions

1. Kyocera’s Position: Kyocera is Entitled to Documents 

to Rebut Hemlock’s Argument that the Liquidated 

Damages Provisions are Enforceable

Kyocera is also entitled to discovery regarding Hemlock’s capital 

investments in its Michigan and Tennessee plants. As required by the Agreements, 

Kyocera made more than $683 million in advance payments to Hemlock. Despite 

collecting those advance payments in order to expand its production capacity, 

Hemlock has argued that it “made over four billion dollars in capital investments at 

its Michigan and Tennessee plants between 2005 and 2010 . . . [and that] [t]he 

necessity and magnitude of these expansion investments rendered Hemlock’s 

potential damages uncertain, and the damages provisions agreed to by the parties 

were reasonable.” Hemlock Semiconductor Corporation v. Deutsche Solar GmbH, 

No. 13-cv-11037-TLL-PTM (Doc. No. 91 at 45). Yet, Hemlock has refused to 

respond to document requests seeking the factual basis for this argument.1

Hemlock cannot make that argument in defense of the enforceability of the 

liquidated damages provisions and, at the same time, avoid discovery regarding the 

factual basis for its assertion. Kyocera is entitled to know how Hemlock financed 

 1 Moreover, as with the first disputed issue, Hemlock has compounded its refusal 

to produce documents by refusing to produce witnesses with knowledge related to 

the advance payments. The parties are continuing to meet and confer with respect 

to those depositions.

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and accounted for its investments—and specifically, whether the advance 

payments Hemlock received from Kyocera and other customers covered all of 

Hemlock’s investment in expanded capacity. 

The Rule 26(b) factors set forth above with respect to the first issue in 

dispute are equally applicable to this issue. Because the critical issue in the case is 

whether Hemlock’s liquidated damages provisions are enforceable, there can be no 

doubt that discovery into the basis for Hemlock’s enforceability arguments is 

important to the resolution of the issues. 

2. Hemlock’s Position: Under The Same Controlling 

Law Governing Liquidated Damages Provisions, Only 

The Circumstances At The Time Of Contracting Are

Relevant

Kyocera’s argument regarding Hemlock’s subsequent expenditures to

expand its facilities—after the contracts were signed—fail for the same reasons 

summarized above and detailed in Hemlock’s opposition brief: Michigan law holds 

that in analyzing liquidated damages provisions, the time of contracting is the only

relevant point of focus. Indeed, Kyocera misrepresents the pleadings from the 

Deutsche Solar action, which cite that same controlling law, cite the recitations 

from the contract concerning those investments, and expressly address the parties’ 

knowledge and intent “[a]t the time the Supply Agreements were signed.” See 13-

cv-11037-TLL-PTM (Doc. No. 91 at 45). 

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Dated: June 22, 2016

By: /s/ Bryan H. Heckenlively

Gregory P. Stone

Daniel B. Levin

Erin J. Cox

Bryan H. Heckenlively

Emily Curran-Huberty

Munger, Tolles & Olson LLP

355 South Grand Avenue

Los Angeles, CA 90071

Tel: (213) 683-9528

gregory.stone@mto.com

daniel.levin@mto.com

David C. Doyle

William V. O’Connor

Morrison & Foerster LLP

12531 High Bluff Drive

San Diego, CA 92130-2040

Tel: (858) 720-5100

ddoyle@mofo.com

woconnor@mofo.com

Robert A. Hahn (P28193)

Jungerheld, Hahn & Washburn, P.C.

P.O. Box 6128

Saginaw, MI 48608-6128

Tel: (989) 790-0000

r.hahn@ameritech.net

Keefe A. Brooks

Brooks Wilkins Sharkey & Turco, PLLC

401 S. Old Woodward, Suite 400

Birmingham, MI 48009

Tel: (248) 971-1800

brooks@bwst-law.com

Attorneys for Defendant Kyocera Corp.

By: /s/ Alvin Lee

Alvin Lee

J. Peter Coll, Jr.

John Ansbro

Alvin Lee

Orrick, Herrington & Sutcliffe LLP

51 West 52nd Street 

New York, NY 10019-6142

Tel: (212) 506-5000

pcoll@orrick.com

jansbro@orrick.com

alee@orrick.com

Craig W. Horn (P34281)

Braun Kendrick Finkbeiner P.L.C.

4301 Fashion Square Blvd.

Saginaw, MI 48603

Tel: (989) 399-0217

crahor@braunkendrick.com

Attorneys for Plaintiffs 

Hemlock Semiconductor Corporation and

Hemlock Semiconductor, LLC

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CERTIFICATE OF SERVICE

I certify that on June 22, 2016, I caused a copy of the foregoing to be filed 

electronically and that the document is available for viewing and downloading 

from the ECF system. Participants in the case who are registered CM/ECF users 

will be served by the CM/ECF system.

By: /s/ Bryan H. Heckenlively

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