UNITED STATES DISTRICT COURT 

EASTERN DISTRICT OF MICHIGAN 

NORTHERN DIVISION 

HEMLOCK SEMICONDUCTOR 

CORPORATION, 

Plaintiff, 

v. 

KYOCERA CORPORATION, 

Defendant. 

Case No. 15-CV-11236-TLL-PTM 

Hon. Thomas L. Ludington 

Mag. Patricia T. Morris 

HEMLOCK SEMICONDUCTOR, 

LLC, 

Plaintiff, 

v. 

KYOCERA CORPORATION, 

Defendant. 

PLAINTIFFS’ MEMORANDUM IN OPPOSITION TO DEFENDANT 

KYOCERA CORPORATION’S MOTION TO COMPEL DISCOVERY 

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TABLE OF CONTENTS

Page

-iI. PRELIMINARY STATEMENT ................................................................ 1 

II. PERTINENT FACTS AND PROCEDURAL HISTORY ......................... 4 

A. Kyocera Executes Four Fixed-Price, Long-Term Supply 

Agreements For Polysilicon On A “Take-Or-Pay” Basis .................... 4 

B. After The Market Price For Polysilicon Declined To A Level 

Below Its Contract Prices, Kyocera Sought To Avoid The 

Supply Agreements And Refused To Make Purchases ....................... 7 

C. Kyocera Files Suit In Michigan State Court, Which Is 

Subsequently Dismissed In Favor Of Hemlock And Affirmed 

On Appeal, Rejecting Any Force Majeure Defense And 

Confirming Kyocera’s Obligations Under The Supply 

Agreements ........................................................................................... 8 

D. The Court Grant’s Hemlock’s Motion To Dismiss/Strike, 

Eviscerating Kyocera’s Meritless Defenses ......................................... 9 

E. With Knowledge Of The Applicable Law, Kyocera Refuses To 

Withdraw Its Irrelevant Requests, And Instead Files This 

Motion ................................................................................................ 10 

III. ARGUMENT ............................................................................................ 11 

A. Discovery Into Hemlock’s Post-2008 Costs, Revenues, Profits, 

And Losses Is Irrelevant To Both Kyocera’s Theory Of 

Unenforceability As Well As The Alternative Damages 

Measure Kyocera Advances ............................................................... 12 

1. Post-2008 Discovery Is Irrelevant To The Enforceability 

Of Liquidated Damage Provisions Under Michigan Law ....... 12 

2. Even If The Supply Agreements’ Damages Provisions 

Are Unenforceable, Post-2008 Discovery Is Still 

Irrelevant To The Alternative Damages Measure 

Advanced By Kyocera Under The UCC .................................. 15 

3. Kyocera Provides No Basis For Discovery Of Post-2008 

Records On “Mitigation” Grounds .......................................... 18 

4. The Court Has Already Held that Kyocera Has No 

“Unjust Enrichment” Defense .................................................. 18 

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TABLE OF CONTENTS

(continued) 

Page

-iiB. Discovery Into Post-2008 Records Concerning Hemlock’s 

Capacity Expansion Is Irrelevant For Identical Reasons ................... 19

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iii 

TABLE OF AUTHORITIES 

 Page(s) 

Cases 

Allsopp Sand & Gravel, Inc. v. Lincoln Sand & Gravel Co., 

525 N.E.2d 1185 (Ill. App. Ct. 1988) ................................................................. 16 

Attorney Gen. v. Pub. Serv. Comm., 

431 N.W.2d 47 (Mich. Ct. App. 1988) ................................................................. 6 

Curran v. Williams, 

352 Mich. 278, 281 (1958) ................................................................................ 13 

Entm’t Prods., Inc. v. Shelby Cnty., Tenn., 

721 F.3d 729 (6th Cir. 2013) .............................................................................. 12 

Hemlock Semiconductor Corp. v. Global Sun Ltd., 

No. 13-11881, 2014 WL 3440119 (E.D. Mich. July 15, 2014)........................ 1, 6 

Hemlock Semiconductor Corporation v. Green Energy Technology, 

No. 13-020593-CK-1 (Mich. Cir. Ct. Apr. 20, 2015) (attached as 

Exhibit A) .....................................................................................................passim

Kyocera Corp. v. Hemlock Semiconductor, LLC, 

No. 327974, 2015 WL 7779299 (Mich. Ct. App. Dec. 3, 2015) .............. 1, 2, 8, 9 

Kyocera Corp. v. Hemlock Semiconductor, LLC, 

15-025786-CK (Mich Cir. Ct. June 16, 2015) (attached as Exhibit 

B) ....................................................................................................................... 8, 9 

McLouth Steel Corp. v. Jewell Coal and Coke Co., 

570 F.2d 594 (6th Cir. 1978) ................................................................................ 7 

Moore v. St. Clair Cnty., 

328 N.W.2d 47 (Mich. Ct. App. 1982) ............................................................... 12 

Northcentral Telecom, Inc. v. AT & T Servs., Inc., 

No. 2:10-CV-225, 2011 WL 2148572 (W.D. Mich. May 31, 2011) ........... 13, 14 

Prenalta Corp. v. Colo. Interstate Gas Co., 

944 F.2d 677 (10th Cir. 1991) .............................................................................. 6 

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iv 

Priebe & Sons, Inc. v. U.S., 

332 U.S. 407 (1947) ............................................................................................ 13 

Surles ex rel. Johnson v. Greyhound Lines, Inc., 

474 F.3d 288 (6th Cir.2007) ............................................................................... 12 

U.S. v. Swanson, 

618 F. Supp. 1231 (E.D. Mich. 1985) ................................................ 12, 13, 14, 0 

Universal Res. Corp. v. Panhandle E. Pipeline Co., 

813 F.2d 77 (5th Cir. 1987) .................................................................................. 6 

Vamplew v. Wayne State Univ. Bd. of Governors, 

No. 12-14561, 2014 WL 266407 (E.D. Mich. Jan. 24, 2014) ............................ 11 

Wilkinson v. Lanterman, 

22 N.W.2d 827 (Mich. 1946) .................................................................. 13, 14, 20 

Statutes 

Mich Comp. Law. § 440.2704(2)............................................................................. 19 

Mich. Comp. Law § 440.2708(1)................................................................. 16, 17, 18 

Mich. Comp. Law § 440.2718(1)............................................................................. 15 

Other Authorities 

Fed. R. Civ. P. 26(b)(1) ............................................................................................ 12 

Prepared by a Task Force of the A.B.A. Subcommittee on General 

Provisions, et. al., Article 2, Part 7: Remedies, 16 Del. J. Corp. L. 

1203 (1991) ......................................................................................................... 17 

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v 

CONTROLLING OR MOST APPROPRIATE AUTHORITY

Cases 

1. Hemlock Semiconductor Corporation v. Green Energy Technology, No. 13-

020593-CK-1 (Mich. Cir. Ct. Apr. 20, 2015) 

2. Hemlock Semiconductor Corp. v. Global Sun Ltd., No. 13-11881, 2014 WL

3440119 (E.D. Mich. July 15, 2014) 

3. Hemlock Semiconductor Corp. v. Kyocera Corp., No. 15-11236, 2016 WL

67596 (E.D. Mich. Jan. 6, 2016) 

4. Kyocera Corp. v. Hemlock Semiconductor, LLC, 2015 WL 7779299 (Mich.

Ct. App. Dec. 3, 2015) 

5. Moore v. St. Clair Cnty., 328 N.W.2d 47 (Mich. Ct. App. 1982) 

6. U.S. v. Swanson, 618 F. Supp. 1231 (E.D. Mich. 1985) 

7. Wilkinson v. Lanterman, 22 N.W.2d 827 (Mich. 1946) 

Statute

Mich. Comp. Law § 440.2708(1) 

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vi 

QUESTIONS PRESENTED 

1) Is Kyocera entitled to wholesale discovery into Hemlock’s accounting and 

financial data that post-dates the execution of the parties’ contracts where, 

under Michigan law, the enforceability of the damages provisions in the 

parties’ agreements only concerns information available to the parties at the 

time of contracting? 

No. 

2) Where the alternative damages measure advanced by Kyocera under the 

UCC is a simple comparison of the contract price and market price—both of 

which already take into account an aggrieved seller’s manufacturing costs—

is Kyocera entitled to information regarding Hemlock’s costs of production? 

No. 

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I. PRELIMINARY STATEMENT 

This is a baseless motion to compel that relies upon the false premise that 

Hemlock is seeking to evade discovery because it assumes that Kyocera’s two 

counterclaims will fail. That is not Hemlock’s position on discovery here. 

Essentially having conceded liability for breaching its long-term supply 

agreements, Kyocera’s counterclaims attack the enforceability of the damages 

provisions contained in those agreements. In the supply agreements at issue 

(already examined with approval in Kyocera Corp. v. Hemlock Semiconductor, 

LLC, No. 327974, 2015 WL 7779299 (Mich. Ct. App. Dec. 3, 2015)), Kyocera 

agreed to “take or pay” at fixed prices for agreed-upon quantities of polysilicon, 

for a ten year period. By the “take or pay” clause—standard in the polysilicon and 

solar industry—Kyocera agreed that it would pay for those agreed quantities on an 

annual basis, even when it did not order the required quantities. Despite the fact 

that Michigan courts have uniformly held Hemlock’s take-or-pay contracts to be 

fully enforceable (including one of the very contracts at issue here), and that this 

very Court has affirmed and enforced Hemlock’s take-or-pay contracts in similar 

litigation, Kyocera contends that the damages provisions it agreed to on four 

separate occasions are unenforceable penalties.1

1 While not at issue on this Motion, this Court has already enforced the very 

damages provisions at issue here. See Hemlock Semiconductor Corp. v. Global 

Sun Ltd., No. 13-11881, 2014 WL 3440119, at *4-5 (E.D. Mich. July 15, 2014). 

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Under Michigan law, a court’s assessment of a liquidated damages provision 

only concerns the facts in existence at the time of contracting. Here, the parties 

entered into the four agreements from 2005 to November 2008. Because Michigan 

law analyzes liquidated damage clauses at the time of execution, Hemlock has 

agreed to produce its relevant cost, accounting, and financial data from that period 

of time. In addition, Hemlock has agreed to produce for deposition witnesses who 

negotiated the contracts, personnel charged with conducting economic evaluations 

at the time the contracts were being signed, and both of its Chief Financial Officers 

from the relevant time period. In sum, Hemlock has agreed to produce all of the 

information that Michigan law requires in order to assess the liquidated damages 

provisions being challenged by Kyocera. 

Ignoring consistent Michigan law stating that liquidated damages provisions 

are not to be assessed retrospectively at the time of breach, Kyocera’s motion seeks 

production of Hemlock’s cost, accounting, and financial data from after the 

execution of the parties’ contracts. The purported basis for Kyocera’s request is 

that the information is pertinent to an assessment of Hemlock’s “actual” damages 

subsequent to Kyocera’s breach. But under Michigan law, a party’s “actual” 

damages at the time of breach are not relevant to the enforceability of a liquidated 

Indeed, the Michigan Court of Appeals has noted—in addressing one of the very 

contracts at issue here—that Kyocera expressly contracted for the liabilities stated 

in the damages provisions. See Kyocera, 2015 WL 7779299. 

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damages provision, and the post-2008 information Kyocera seeks is therefore 

irrelevant. 

Kyocera next argues that it is entitled to Hemlock’s post-2008 financial and 

cost information because, if its counterclaims were to succeed (thus rendering the 

liquidated damages provisions unenforceable), the default measure of damages is 

determined under Section 2-708(1) of the UCC, which provides for contract-tomarket damages. But that provision merely calculates damages by subtracting the 

market price at the time of tender from the contract price. While Section 2-708(1) 

also states that “expenses saved in consequence of the buyer’s breach” should be 

subtracted from the final contract-to-market damages figure, applicable law makes 

clear that “expenses saved” merely refers to incidental costs, such as the cost of 

shipping or insurance—not the cost of producing the goods in question. Kyocera 

argues illogically that the phrase “expenses saved” as used in Section 2-708(1) 

would include Hemlock’s manufacturing and production costs. By definition, 

however, the contract-to-market measure of damages takes account of an aggrieved 

seller’s costs of production, as it is already built into both the contract and the 

market price. 

There is no absolutely basis for this motion, and it should be denied. In fact, 

a motion to compel substantively identical to this one has already been briefed, 

argued, and decided in Hemlock’s favor in Michigan state court, with leave to 

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appeal subsequently denied by the Michigan Court of Appeals. See Oral Opinion 

Of The Court, Hemlock Semiconductor Corporation v. Green Energy Technology, 

No. 13-020593-CK-1 (Mich. Cir. Ct. Apr. 20, 2015) (hereinafter “GET”) (attached 

as Exhibit A); leave denied, (Mich Ct. App. Dec. 2, 2015). In GET, the defendant 

(also a defaulting customer of Hemlock’s) made the same arguments in seeking the 

same post-contract financial documentation that Kyocera seeks by this motion—

information concerning Hemlock’s production costs, accounting, and financials 

after the contract in question had been signed. The Saginaw County Circuit Court 

(by Chief Judge Borchard) denied the motion and applied controlling Michigan 

law in rejecting the same meritless arguments Kyocera asserts here. 

Finally, Kyocera argues that it is entitled to the information at issue on this 

Motion to support its defense of unjust enrichment. But this Court has already 

explicitly held that Kyocera has no “unjust enrichment” claim, as it is barred by the 

existence of the parties’ express contracts. Kyocera’s motion should be denied in 

its entirety. 

II. PERTINENT FACTS AND PROCEDURAL HISTORY 

A. Kyocera Executes Four Fixed-Price, Long-Term Supply 

Agreements For Polysilicon On A “Take-Or-Pay” Basis 

Kyocera is a producer and supplier of high-quality solar panels, and is part 

of the Kyocera group of companies (Dkt. 89 at 32), which had total net sales in 

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fiscal 2016 of $13.9 billion.2 Hemlock is a major manufacturer of polycrystalline 

silicon, which is used in the manufacturing of solar panels. Id. 

Kyocera executed four agreements with Hemlock between 2005 and 2008, a 

time marked by a worldwide shortage of polysilicon (and consequently, markedly 

high prices). Dkt. 89 at 34. In order to secure a stable source of high quality 

polysilicon at long-term, fixed prices, Kyocera entered into the Supply 

Agreements, each of which requires that Kyocera “take or pay” for the agreedupon quantities of polysilicon each year, regardless of whether it actually orders 

and takes delivery of the product. Specifically, the Supply Agreements provide: 

This Agreement is a “take or pay agreement” such that, in 

addition to making the Advance Payment required under 

Section 6, [Kyocera] is absolutely and irrevocably 

required to pay the Net Price per kilogram for the Contract 

Quantity per calendar year over the term of this 

Agreement. In the event that Buyer fails to order or take 

delivery of the Contract Quantity for a calendar year then 

Seller shall invoice Buyer for the difference between the 

quantity of Products ordered in that calendar year and the 

Contract Quantity of Product for that calendar year at the 

Net Price in effect for HSC DMS and/or HS DMS for that 

calendar year . . . and Buyer shall pay the same in 

accordance with Section 9 hereof. 

2 See Consolidated Financial Results of Kyocera Corporation and its 

Subsidiaries for the Year Ended March 31, 2016, available at 

http://global.kyocera.com/ir/news/pdf/rt160427_e.pdf. 

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Consol. Compl. (Dkt. 85), Ex. D (Supply Agreement IV).3 The total amount of 

polysilicon Kyocera committed to purchase under all four Supply Agreements is 

approximately $2.5 billion. Consol. Compl. ¶ 4, Exs. A-D. 

This Court has previously upheld the take-or-pay and full-term damages 

provisions contained in Hemlock’s supply agreements. See Global Sun, 2014 WL 

3440119, at *4-5 (holding that “[t]he terms of a take-or-pay clause are fully 

enforceable” and that “[Hemlock’s] damages are measured by the obligation to 

pay—the value of which is the contract price in effect at the time such deficiency 

occurred multiplied by the difference between the contract quantity and the actual 

quantity of product purchased for any year buyer was in breach.” (emphasis added) 

(internal quotation marks and brackets omitted) (citing Prenalta Corp. v. Colo. 

Interstate Gas Co., 944 F.2d 677, 690 (10th Cir. 1991) and Universal Res. Corp. v. 

Panhandle E. Pipeline Co., 813 F.2d 77, 80 (5th Cir. 1987)). Other Michigan 

courts have likewise recognized the validity of and/or enforced take-or-pay 

agreements. See Attorney Gen. v. Pub. Serv. Comm., 431 N.W.2d 47, 49 (Mich. 

Ct. App. 1988) (under “take-or-pay” contract, “the mere fact that, for the 1984 

accounting year, less gas was used by Consumers’ customers, thereby triggering an 

additional payment under the minimum contract quantity clause, does not render 

3 Supply Agreements I-III have slightly different, but functionally identical 

language. Consol. Compl., Exs. A-C. 

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the agreement unreasonable or imprudent”); McLouth Steel Corp. v. Jewell Coal 

and Coke Co., 570 F.2d 594, 605 (6th Cir. 1978) (under contract with minimum 

“take-or-pay” guarantee, “[defendant] could have required [plaintiff] to take and 

pay for the minimum 9,000 tons per month of coke provided in the contract”); 

GET, at 11-12 (denying motion to compel financial information, recognizing the 

“judicial acceptance” of take-or-pay clauses based on this same authority). 

B. After The Market Price For Polysilicon Declined To A Level 

Below Its Contract Prices, Kyocera Sought To Avoid The Supply 

Agreements And Ceased Making Purchases 

In the years after the execution of the Supply Agreements, Kyocera alleges 

that the Chinese government undertook a campaign of subsidizing Chinese solar 

companies, leading to an influx of lower-cost product into the global market and 

plummeting prices for polysilicon. Dkt 89, pp. 54-56. Despite a sharp decrease in 

polysilicon prices, Kyocera performed its obligations under the Supply 

Agreements through 2014. But Kyocera claims that in 2014, it “realized it could 

not continue its solar business if it purchased polysilicon at the prices nominally 

called for in the Agreements” (Dkt. 89 at 64), decided to breach the contracts, and 

has not placed an order for polysilicon since and has refused to pay as it agreed to 

do in the Supply Agreements. 

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C. Kyocera Files Suit In Michigan State Court, Which Is 

Subsequently Dismissed In Favor Of Hemlock And Affirmed On 

Appeal, Rejecting Any Force Majeure Defense And Confirming 

Kyocera’s Obligations Under The Supply Agreements 

On February 13, 2015, Kyocera sued Hemlock in the Saginaw County 

Circuit Court seeking a declaration that, due to Chinese interference in the 

marketplace, its performance under Supply Agreement IV was excused by that 

contract’s force majeure clause, applicable to “acts of the Government.” Consol. 

Compl. Ex. D. 

The trial court granted Hemlock’s motion to dismiss that action on June 16, 

2015, holding that the facts alleged did not trigger the force majeure clause. 

Opinion And Order, Kyocera Corp. v. Hemlock Semiconductor, LLC, 15-025786-

CK (Mich Cir. Ct. June 16, 2015) (attached as Exhibit B). Kyocera appealed that 

decision, and on December 3, 2015, the Michigan Court of Appeals affirmed. 

Kyocera, 2015 WL 7779299. In its decision, the Michigan Court of Appeals 

voiced a strong validation of take-or-pay contracts: 

The very essence of a take-or-pay contract is therefore to 

allocate to the buyer the risk of falling market prices by 

virtue of fixed purchase obligations at a long-term fixed 

price, and to thereby secure for the buyer a stable supply, 

while allocating to the seller the risk of increased market 

prices and, by virtue of the buyer's obligation to take or 

pay for a fixed quantity of product, removing from the 

seller the risk of producing product that may go 

unpurchased. 

Id. Addressing the scope of Kyocera’s total potential liability under the take-or1:15-cv-11236-TLL-PTM Doc # 112 Filed 06/17/16 Pg 15 of 29 Pg ID 5253
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pay provision and the potential acceleration of those damages upon termination, 

the Court of Appeals explained: 

If plaintiff [Kyocera] is liable under the contract for the 

full purchase price of all unordered polysilicon for the 

duration of the contract, plaintiff faces liability of up to 

$1.74 billion . . . . Nonetheless . . . we conclude that 

plaintiff contracted for precisely that liability . . . .” 

Id. (emphasis added). Kyocera has moved for leave to appeal to the Michigan 

Supreme Court, and its application is pending. 

D. The Court Grant’s Hemlock’s Motion To Dismiss/Strike, 

Eviscerating Kyocera’s Meritless Defenses 

On April 1, 2015, Hemlock filed this action premised on Kyocera’s stated 

intent not to comply with its contractual obligations under Supply Agreements I-III 

and its failure to provide adequate assurances of performance under the UCC.4

Dkt. 1. Kyocera filed an Answer and Counterclaims on July 10, 2015, alleging a 

host of defenses premised on economic difficulty and “interference” by the 

Chinese government in the solar markets. Dkt. 9. 

4 Two days after Hemlock filed this action, on April 3, 2015, Kyocera sued 

Hemlock in the Civil Division of Tokyo District Court in Japan, alleging violations 

of antitrust law premised on “abuse of superior bargaining power.” Dkt. 102 at 3. 

On October 7, 2015, Hemlock Semiconductor, LLC filed suit in Saginaw County 

circuit court in Michigan, alleging breach of Supply Agreement IV (per a 

contractual choice of forum clause). Id. Kyocera removed that action to this Court 

on February 3, 2016, and that matter was consolidated with this case on March 8, 

2016. Id. 

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Hemlock moved to dismiss all seven of Kyocera’s counterclaims as well as 

certain of its affirmative defenses. On January 6, 2016, the Court issued an 

extensive opinion granting Hemlock’s motion in its entirety, and striking 

Kyocera’s counterclaims premised on (i) impracticability/impossibility; (ii) 

frustration of purpose; (iii) force majeure; (iv) illegality under Japanese antitrust 

law; (v) mutual mistake; (vi) unjust enrichment; and (vii) Hemlock’s breach of the 

Agreements. Dkt. 61. It did so primarily on the grounds that Kyocera was not 

entitled to avoid its obligations under the Supply Agreements simply because the 

price of polysilicon had changed, given its express assumption of the risk of 

market shifts via its long-term, fixed price contracts. 

The Court subsequently denied Kyocera’s motion for “clarification” of that 

decision and denied Kyocera’s motion to replead numerous defenses. Dkt. 75. 

Hemlock filed a consolidated amended complaint on March 16, 2016 (Dkt. 85), 

and Kyocera filed its amended answer and counterclaims to that pleading on April 

8, 2016 (Dkt. 89). 

E. With Knowledge Of The Applicable Law, Kyocera Refuses To 

Withdraw Its Irrelevant Requests, And Instead Files This Motion 

Hemlock objected to the document requests at issue to the extent they seek 

documents relating to: (i) Hemlock’s production cost accounting (RFP 20); (ii) 

Hemlock’s accounting of payments from Kyocera (RFP 18); (iii) Hemlock’s profit 

and loss and financial statements (RFP 36); and (iv) Hemlock’s planned capacity 

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expansions. Kyocera Mot. Ex. B. Hemlock also objected to Kyocera’s requests 

relating to the post-2008 construction or sale of Hemlock’s Tennessee plant (RFPs 

21, 22). Id. By its objection, Hemlock reminded Kyocera of the controlling 

Michigan law holding that the relevant point of analysis of a liquidated damage 

clause is at the time the contract is executed—not later. 

III. ARGUMENT 

Kyocera bears the burden of establishing the relevance of the documents it 

seeks. Vamplew v. Wayne State Univ. Bd. of Governors, No. 12-14561, 2014 WL 

266407, at *1 (E.D. Mich. Jan. 24, 2014) (“The proponent of a motion to compel 

discovery bears the initial burden of proving that the information sought is 

relevant.”) (internal quotation marks omitted); Dkt. 98 at 7 (order denying 

Kyocera’s prior motion to compel production of documents). Under the newly 

amended Federal Rules, the scope of discovery is limited to “any nonprivileged 

matter that is [i] relevant to any party’s claim or defense and [ii] proportional to the 

needs of the case,” considering a host of factors.5 Dkt. 98 at 7, quoting Fed. R. 

Civ. P. 26(b)(1). 

5 These enumerated factors include “the importance of the issues at stake in 

the action, the amount in controversy, the parties’ relative access to relevant 

information, the parties’ resources, the importance of the discovery in resolving the 

issues, and whether the burden or expense of the proposed discovery outweighs its 

likely benefit.” 

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Therefore, “the district court may limit discovery due to irrelevance and 

burdensomeness.” Entm’t Prods., Inc. v. Shelby Cnty., Tenn., 721 F.3d 729, 744 

(6th Cir. 2013) (citing Surles ex rel. Johnson v. Greyhound Lines, Inc., 474 F.3d 

288, 305 (6th Cir. 2007)). “Although a plaintiff should not be denied access to 

information necessary to establish her claim, neither may a plaintiff be permitted to 

go fishing and a trial court retains discretion to determine that a discovery request 

is too broad and oppressive.” Id. (internal quotation marks omitted). 

A. Discovery Into Hemlock’s Post-2008 Costs, Revenues, Profits, 

And Losses Is Irrelevant To Both Kyocera’s Theory Of 

Unenforceability As Well As The Alternative Damages Measure 

Kyocera Advances 

1. Post-2008 Discovery Is Irrelevant To The Enforceability Of 

Liquidated Damage Provisions Under Michigan Law 

As a threshold matter, the discovery Kyocera seeks is entirely irrelevant to 

its challenge to the contracts’ damages provisions as an unenforceable “penalty.” 

Under Michigan law, agreements fixing damages are enforceable “where the 

damages which would result from a breach are uncertain and difficult to ascertain 

at the time the contract is executed.” Moore v. St. Clair Cnty., 328 N.W.2d 47, 49-

50 (Mich. Ct. App. 1982) (emphasis added). Michigan law is clear that in 

analyzing a liquidated damage provision, the only relevant point is the time the 

contract was signed—not at the time of breach or at any subsequent point. See 

U.S. v. Swanson, 618 F. Supp. 1231, 1243 (E.D. Mich. 1985) (“[T]he fact that the 

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damages suffered are shown to be less than the damages contracted for is not fatal. 

These provisions are to be judged as of the time of the making of the contract.”) 

(quoting Priebe & Sons, Inc. v. U.S., 332 U.S. 407 (1947) (emphasis added)); 

Curran v. Williams, 352 Mich. 278, 281 (1958) (“[T]he parties, particularly at the 

time of execution of the instrument, are in as good a position as anyone to arrive at 

a fair amount of damages for a subsequent breach. In the event they are not 

unconscionable or excessive courts will not disturb it.”) (emphasis added). 

The GET court made the exact same holding in rejecting discovery into 

Hemlock’s post-contracting production and financial data, on the basis that under 

Michigan law as announced by the Michigan Supreme Court, “[t]he validity and 

reasonableness of a liquidated damages provision is determined by conditions 

existing at the time the contract is entered into, not when the breach occurs.” GET, 

at 7 (emphasis added) (citing Wilkinson v. Lanterman, 22 N.W.2d 827 (Mich. 

1946) (enforcing liquidated damages provision despite proof at trial that plaintiff 

subsequently incurred no damages). 

Kyocera relies entirely on one case for the proposition that subsequent 

events or damages are relevant to the inquiry—but Kyocera fails to advise the 

Court that the case applies Texas law, which is contrary to the law of Michigan on 

this point. See Northcentral Telecom, Inc. v. AT & T Servs., Inc., No. 2:10-CV225, 2011 WL 2148572 (W.D. Mich. May 31, 2011) (applying Texas law “actual 

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harm” test pursuant to contractual choice-of-law clause, which—unlike Michigan 

law—requires that liquidated damage be proportional to subsequently sustained 

damages). By contrast, Michigan law inquires only as to the reasonableness of the 

parties’ stipulation at the time of contracting, without regard to subsequent losses. 

Swanson, 618 F. Supp. at 1243; Wilkinson, 22 N.W.2d at 830. 

Kyocera also takes language in the Michigan UCC out of context, despite 

the uniform treatment of the issue by Michigan courts. Kyocera notes that under 

Mich. Comp. Law § 440.2718(1), damages may only be liquidated in an amount 

“which is reasonable in light of the anticipated or actual harm caused by the breach 

. . . .” Br. at 10. Kyocera’s unsupported mischaracterization of “actual harm” does 

not change the analysis. The UCC recognizes that, when a contract is signed, the 

parties may contemplate a range of different types of damage—some of which are 

“actual,” that is, known in type and amount, and some of which are unknown, 

uncertain, and “anticipated.” For example, a seller may have certain perishables on 

hand which would be rendered useless by a buyer’s breach—this would be a 

known and actual consequence of breach at the time of contracting, in addition to 

other, less defined damages which could be otherwise “anticipated.” Kyocera does 

not identify a single decision applying the UCC in the way it suggests, much less 

one that would transform the fundamental approach of Michigan courts to the 

analysis of liquidated damage provisions stated above—because none exists. 

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2. Even If The Supply Agreements’ Damages Provisions Are 

Unenforceable, Post-2008 Discovery Is Still Irrelevant To 

The Alternative Damages Measure Advanced By Kyocera 

Under The UCC 

Even if the damages provisions of the Supply Agreements were 

unenforceable as “penalties,” Hemlock’s post-2008 financial information is still 

irrelevant under the law Kyocera relies on. Kyocera’s motion argues a basis for 

discovery under Michigan Uniform Commercial Code § 440.2708(1), which it 

claims could supply the proper measure of damages in the absence of a contractual 

provision. Mot. at 9. But § 2708(1) provides for “contract to market” damages, 

which are simply the difference between the contract price and the market price at 

the time of conveyance—a matter of simple arithmetic based on comparing the 

contracts here against publicly available information, independent of any “actual” 

business activities on Hemlock’s part. 

Kyocera argues that damages under § 2708(1) are reduced by “expenses 

saved in consequence of the buyer’s breach,” which it seeks to probe by obtaining 

information about Hemlock’s cost accounting (RFP 18), how Hemlock accounts 

for Kyocera’s payments (RFP 20), and Hemlock’s financial statements (RFP 36). 

This fundamentally misunderstands how § 2708(1) is applied. Costs that are, by 

their nature, priced into the market price—materials, labor, overhead, 

manufacturing, etc.—are not the type of “expenses” that § 2708(1) deducts from 

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damages, since those costs are already deducted from the damages as part of the 

market price. As one commentary has explained: 

It should be clear that the deduction for “expenses saved 

in consequences of the buyer’s breach” does not include 

costs that the seller would have incurred to procure or to 

manufacture the goods. Those savings are already 

worked into the formula in § 2-708(1). 

Prepared by a Task Force of the A.B.A. Subcommittee on General Provisions, et. 

al., Article 2, Part 7: Remedies, 16 Del. J. Corp. L. 1203, 1219 (1991) (emphasis 

added); accord Allsopp Sand & Gravel, Inc. v. Lincoln Sand & Gravel Co., 525 

N.E.2d 1185, 1187 (Ill. App. Ct. 1988) (deducting “loading expenses” under 

Illinois’s version of UCC § 2-708(1)). 

 An example makes this clear: Suppose a seller manufactures widgets, and 

each widget costs $100 to make. A buyer contracts to buy the widgets for $200 

each. At the time of conveyance, the market price is $150 per widget. The buyer 

breaches by failing to make payment. Under § 440.2708(1), damages would be 

$50—i.e., the difference between the contract price ($200) and the market price 

($150)—less incidental expenses specific to the contract, such as shipping.6

6 While it is sometimes appropriate to deduct shipping costs as “expenses 

saved” under Section 2-708(1) when those costs are borne by the seller, that is not 

the case here because Kyocera agreed to bear all shipping costs under the parties’ 

supply agreements. See Supply Agreements, Consol. Compl. Exs. A-C at Section 

3, Ex. D at Section 10 (providing shipment under Incoterms FCA, by which buyer 

bears all costs). 

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Kyocera does not, and cannot, identify any support for its argument that the $100 

manufacturing cost should also be deducted, which would result in a negative 

value, leaving nothing for the seller. Rather, by deducting the market price from 

the contract price, § 440.2708(1) already deducts all of the manufacturing and 

overhead costs that go into making the widget for $100 (plus whatever profit seller 

could have obtained on the open market). Deducting those costs again as 

“expenses saved” would undermine the goal of § 440.2708(1): to give the seller the 

benefit of the bargain. 

In GET, a different Hemlock customer that breached its supply agreement 

made the same argument that Kyocera does here. The Saginaw County Circuit 

Court rejected it, holding that Hemlock’s business activities, production data, and 

financial statements were irrelevant to the UCC’s “contract to market” damage 

calculation. GET, at 11 (applying § 2708(1); “The contract price is the agreement, 

and the market price does not appear [to be] a function of [Hemlock’s] financial 

condition.”). Similarly here, RFPs 18, 20, and 36 bear no relation to any 

calculation of “expenses saved” under § 440.2708(1), eliminating Kyocera’s 

primary asserted basis for discovery even if damages in this action were 

determined under the UCC provisions Kyocera relies on—rather than according to 

the contract Kyocera signed. 

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3. Kyocera Provides No Basis For Discovery Of Post-2008 

Records On “Mitigation” Grounds 

Kyocera makes the conclusory, unsupported argument that Hemlock “had a 

duty to mitigate damages by not producing unordered polysilicon and not incurring 

unnecessary costs.” Mot. at 13. But whether Hemlock manufactured or chose not 

to manufacture given amounts of polysilicon has no bearing on the mathematical 

equations which would determine Hemlock’s “actual damages,” either under the 

contracts or under the portions of the UCC advanced by Kyocera.7

In fact, the court in GET rejected a “mitigation” argument because the 

contract itself specifies the amount of damages. GET also held that Hemlock’s 

activities in manufacturing and selling polysilicon bore no relation to “mitigation” 

as contemplated by the law, and provided no valid grounds to seek discovery of 

Hemlock’s production and finance records. GET, at 13-15. 

4. The Court Has Already Held that Kyocera Has No “Unjust 

Enrichment” Defense 

Kyocera also claims that “Hemlock’s profits and losses are also relevant to 

Kyocera’s unjust enrichment defense—namely, that Hemlock is capitalizing on a 

market collapse caused by illegal conduct to reap windfall profits.” Mot. at 13. 

Kyocera’s argument ignores this Court’s January 6, 2016 Order, which expressly 

7 The UCC instead specifies that upon a buyer’s breach, a seller may either 

choose to cease manufacture of unfinished goods, complete manufacturing, or 

proceed in any other reasonable manner. Mich Comp. Law. § 440.2704(2). 

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held that Kyocera cannot assert an unjust enrichment defense, because all of the 

matters concerning its payments are governed by written contracts: 

However, because express written agreements exist 

between the parties, Kyocera cannot challenge the fairness 

of the contract terms it agreed to or its performance under 

the express contract terms on a quantum meruit theory of 

unjust enrichment. If Kyocera seeks to challenge the 

fairness of the express contract terms, it must do so under 

claims of unconscionability, duress or fraud. Kyocera 

may only challenge Hemlock’s performance under the 

express contract terms by asserting a breach of contract 

claim. 

Dkt. 61 at 22. Thus, these so-called “grounds” for discovery have already been 

rejected. 

B. Discovery Into Post-2008 Records Concerning Hemlock’s 

Capacity Expansion Is Irrelevant For Identical Reasons 

Finally, Kyocera argues that it is entitled to discovery into Hemlock’s 

records concerning its subsequent plant expansions and investments in Michigan 

and Tennessee. Mot. at 14-15, RFP 19, 21, 22. Kyocera argues that these 

documents are relevant to analysis of the liquidated damages issue. Kyocera is 

wrong for the same reasons cited in Section III.A.1, above—namely, that “[t]he 

validity and reasonableness of a liquidated damages provision is determined by 

conditions existing at the time the contract is entered into,” not by any subsequent 

events. 

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The Court need look no further than the Supply Agreements to understand 

the issue. The Supply Agreements state that “[Kyocera] understands and 

acknowledges that [Hemlock] is making substantial capital investments to expand 

its manufacturing capabilities in order to satisfy [Kyocera’s] demand for the 

Products.” Consol. Compl. Exs. A-C, Section 10. It is the prospective recognition 

of the necessity of that investment at the time of contracting—not simply in 

building the plants, but operating them and maintaining them well into the future, 

together with all attendant risks—that bears on the reasonableness inquiry. 

Kyocera claims that Hemlock relied on its actual expenses in the Deutsche Solar 

case as justification, but in fact, there Hemlock merely stated the following: 

At the time the Supply Agreements were signed, Deutsche 

Solar wanted a long-term and reliable source of 

polysilicon. Hemlock could only make such a supply 

commitment if it invested billions of dollars in capacity 

expansions, and the contracts the parties negotiated 

expressly acknowledged this. 

No. 13-cv-11037, Dkt. 91 at 45. The fact of any subsequent expenditure was a 

matter of public record in that case, and mentioned merely as corroboration of the 

relevant matter, which is what the parties believed at the time of execution. In fact, 

whether the planned expansions eventually cost more or less does not change the 

inquiry under Michigan law, which focuses on the anticipated circumstances and 

the parties’ intent at the time they signed the contract, not at any subsequent point. 

Swanson, 618 F. Supp. at 1243; Wilkinson, 22 N.W.2d at 830; GET at 7. 

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CONCLUSION 

The Court should deny Kyocera’s Motion to Compel in its entirety. 

Dated: June 17, 2016 By: /s/ Alvin Lee 

ORRICK, HERRINGTON & SUTCLIFFE 

LLP 

J. Peter Coll, Jr. 

John Ansbro 

Alvin Lee 

51 West 52nd Street 

New York, New York 10019 

Telephone: (212) 506-5000 

Facsimile: (212) 506-5151 

pcoll@orrick.com 

jansbro@orrick.com 

alee@orrick.com 

BRAUN, KENDRICK, FINKBEINER, PLC 

Craig W. Horn (P34281) 

4301 Fashion Square Boulevard 

Saginaw, Michigan 48603 

Telephone: (989) 498-2100 

crahor@BraunKendrick.com 

Attorneys for Plaintiffs Hemlock Semiconductor 

Corporation and Hemlock Semiconductor, LLC 

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CERTIFICATE OF SERVICE 

I hereby certify that on June 17, 2016, I electronically filed the foregoing 

Plaintiffs’ Memorandum Of Law In Opposition to Defendant’s Kyocera 

Corporation’s Motion to Compel Discovery with the Clerk of the Court using the 

ECF System, which will send notification of such filing to all attorneys of record. 

By: /s/ Alvin Lee 

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