UNITED STATES DISTRICT COURT 

EASTERN DISTRICT OF MICHIGAN 

NORTHERN DIVISION 

HEMLOCK SEMICONDUCTOR 

CORPORATION, et al., 

 Plaintiff, Case No. 15-cv-11236 

v Honorable Thomas L. Ludington 

KYOCERA CORPORATION, 

 

 Defendant. 

__________________________________________/ 

ORDER GRANTING HEMLOCK’S MOTION TO DISMISS, 

DISMISSING KYOCERA’S FIRST AND SECOND COUNTERCLAIMS, 

AND OVERRULING KYOCERA’S OBJECTIONS 

The present dispute between Plaintiff Hemlock Semiconductor Corporation (“Hemlock 

Corp.” or “Hemlock”) and Defendant Kyocera Corporation arises from a series of contracts for 

the sale of quantities of industrial-grade polycrystalline silicon by Hemlock to Kyocera. 

Following changes in global solar market conditions, Kyocera sought to excuse its performance 

under a force majeure provision in the parties’ contracts. In response, Hemlock sought adequate 

assurances that Kyocera would perform its obligations under the agreements. When Hemlock 

concluded that Kyocera had not provided adequate assurances that it would perform its 

contractual commitment, it initiated this suit on April 1, 2015. On March 8, 2016, the matter was 

consolidated with a related case between Hemlock Semiconductor, LLC (“Hemlock LLC”) and 

Kyocera. See ECF No. 83. 

On May 31, 2016 Kyocera filed a motion to compel discovery. See ECF No. 105. That 

motion was referred to Magistrate Judge Patricia T. Morris, who denied the motion on July 8, 

2016. See ECF No. 116. On July 11, 2016 discovery was stayed in order to allow the parties 
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time to attempt to resolve the matter. See ECF No. 117. After the stay was lifted, on January 1, 

2017, Kyocera filed objections to the magistrate judge’s discovery order. See ECF No. 128. 

Then, on January 27, 2017 Hemlock Corp. and Hemlock LLC (together “Hemlock”) filed a 

motion to dismiss Kyocera’s two remaining counterclaims. See ECF No. 130. For the reasons 

stated below, Hemlock’s motion to dismiss will be granted and Kyocera’s objections will be 

overruled. 

I. 

Beginning in 2005, in the face of a worldwide polysilicon shortage, Hemlock and 

Kyocera entered into four long-term polysilicon supply contracts. The first Long Term Supply 

Agreement (“Agreement I”) is effective from August 30, 2005 to December 31, 2015. The 

second Long Term Supply Agreement (“Agreement II”) is effective from July 21, 2006 to 

December 31, 2018. The third Long Term Supply Agreement (“Agreement III”) is effective from 

July 18, 2007 to December 31, 2019. Finally, the fourth Long Term Supply Agreement 

(“Agreement IV”) is effective from November 13, 2008 to December 31, 2020. The agreements 

require Kyocera to make significant initial payments to assist Hemlock’s expansion of its 

existing polysilicon production facilities in the United States. 

A. 

After the parties entered into the agreements, the global solar industry was affected by the 

Chinese government’s intervention. Specifically, the Chinese government provided subsidies to 

Chinese solar-based companies and facilitated large-scale “dumping” of Chinese solar panels 

into the global market in order to increase Chinese market share in the solar industry. In 

response, in 2012 the United States government imposed anti-subsidy and anti-dumping import 
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tariffs of 24-36 percent on Chinese solar components. These state actions caused the prices of 

both polysilicon and solar panels to drop precipitously. 

In response to the falling market prices, the parties agreed to short-term contract 

modifications in 2011 and 2012 that lowered the gross price and the advance payment for those 

years. These modifications did not affect any other contract terms or future pricing schedules. 

While the short-term price amendments came to an end, the Chinese market saturation and 

resulting trade war did not. From mid-2014 to early 2015, Kyocera proposed additional price 

modifications, all of which Hemlock rejected. 

After failing to reach a modification agreement, Kyocera sent notice to Hemlock in 

February 2015 that it was exercising a force majeure provision of Agreement IV. Hemlock 

refused to recognize Kyocera’s invocation of any force majeure rights, contending that the force 

majeure provision in Agreement IV did not excuse Kyocera from performance because of the 

changing solar-market conditions. Consequently, on February 13, 2015 Kyocera filed suit in 

Michigan State Court seeking a declaration that its contractual performance could be excused by 

Agreement IV’s force majeure clause. On June 16, 2015, the Michigan State trial court granted 

Hemlock’s motion for summary disposition, finding that the change in market conditions did not 

implicate Agreement IV’s force majeure clause. On December 3, 2015, the Michigan Court of 

Appeals affirmed, explaining that Kyocera had assumed the market risks that gave rise to the 

alleged liability and that “the plain language of the force majeure clause at issue does not permit 

relief to plaintiff on the grounds that the market for polysilicon has shifted, regardless of the 

cause of that shift.” Kyocera Corp. v. Hemlock Semiconductor, 15-025786-CK *2 (Mich. Ct. 

App. Dec. 3, 2015), ECF No. 58 Ex. A. 

B.
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 On February 26, 2015 Hemlock sent Kyocera a demand for adequate assurances that it 

would perform under Agreements I-III pursuant to MCLA § 440.2609. Compl. ¶ 28. Kyocera 

sent Hemlock a response on March 26, 2015, arguing that Kyocera had no obligation to provide 

written assurances to Hemlock and that MCLA § 440.2609 did not apply to the supply 

agreements. Id. at ¶ 29. Hemlock then initiated the instant suit on April 1, 2015 alleging that 

Kyocera had failed to provide Hemlock with adequate assurances that it would make purchases 

under the supply agreements in 2015. Am. Compl. ¶ 28. On April 3, 2015, Kyocera filed a 

complaint against Hemlock in the Civil Division of Tokyo District Court in Japan, alleging that 

Hemlock violated Japanese antitrust law by abusing a superior position of bargaining power in 

entering into the supply agreements. 

Hemlock filed an amended complaint on April 29, 2015, asserting that Kyocera had 

failed to provide adequate assurances of performances under MCLA § 440.2609 and had 

repudiated Supply Agreements I-III. ECF No. 4. Hemlock also sought a declaratory judgment 

that Agreements I-III were not unconscionable, and an anti-suit injunction to prevent Kyocera 

from prosecuting a related action in Tokyo. Id. Kyocera filed its answer together with six 

counterclaims on July 10, 2015. ECF No. 9. On January 6, 2016 the Court granted Hemlock’s 

motion to dismiss Kyocera’s counterclaims and granted Hemlock’s motion to strike Kyocera’s 

Japanese antitrust defense. ECF No. 61. 

On March 11, 2016, this matter was consolidated with a related action between Hemlock 

LLC and Kyocera regarding the enforceability of Agreement IV, which was removed from 

Michigan state court. ECF No. 83. After consolidation, on March 18, 2016 Hemlock filed a 

second amended complaint asserting three claims against Kyocera: (1) Breach of contract arising 

out of a failure to perform 2015 take-or-pay obligations; (2) Breach of contract regarding 
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attorneys’ fees; and (3) Claim for a declaratory judgment that the supply agreements are not 

unconscionable. See Am. Compl. II, ECF No. 85. On April 8, 2016 Kyocera filed an amended 

answer and six counterclaims. Am. Answer, ECF No. 89. Pursuant to a motion to strike filed by 

Hemlock, the Court issued an order striking four of the counterclaims as redundant under Federal 

Rule of Civil Procedure 12(f). See ECF No. 100. Kyocera has two counterclaims remaining: (1) 

Claim for a declaratory judgment that “Take or Pay” clauses in Agreements I-IV are 

unenforceable penalties; and (2) Claim for a declaratory judgment that “Acceleration” clauses in 

Agreements I-IV are unenforceable penalties. 

Discovery was initially stayed on July 11, 2016 to provide the parties an opportunity to 

consensually resolve the case, and then stayed through the 2016 calendar year to allow Kyocera 

to perform on the 2015 contracts. See ECF Nos. 117, 121, 123. After Kyocera completed 

purchase of the polysilicon volume required for the 2015 year, on December 12, 2016 the parties 

stipulated to the dismissal of Hemlock’s breach of contract claim related to Kyocera’s 2015 

obligations. See ECF No. 124. 

II. 

 Hemlock now moves to dismiss Kyocera’s two remaining counterclaims pursuant to 

Federal Rule of Civil Procedure 12(c). Hemlock argues that Kyocera’s first counterclaim – the 

challenge to the take-or-pay provisions – fails as a matter of law. Hemlock argues that 

Kyocera’s second counterclaim – the challenge to the acceleration provisions – is not ripe for 

adjudication, and thus does not present a justiciable case or controversy. In response, Kyocera 

does not object to the dismissal of its second counterclaim on ripeness grounds. Kyocera’s 

second counterclaim will therefore be dismissed without prejudice. 
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 This leaves the parties’ dispute over the take-or-pay provisions. Hemlock argues that 

because the take-or-pay provisions are bargained-for contract provisions, they are presumptively 

enforceable. Kyocera argues that because the take-or-pay provisions do not present Kyocera with 

a real option, they are unenforceable penalty provisions. In Kyocera Corp. v. Hemlock 

Semiconductor, LLC, the Michigan Court of Appeals addressed the very take-or-pay provisions 

at issue in this case. N.W.2d 445 (Mich. Ct. App. 2015). That court addressed the question of 

whether a force majeure provision in Agreement IV excused Kyocera from performing its 

obligations under the take-or-pay provision. Kyocera did not directly challenge the enforceability 

of the take-or-pay provision. However, in dicta, the court explained as follows: 

The very essence of a take-or-pay contract is 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. at 447. Noting that a court’s “main goal in the interpretation of contracts is to honor the intent 

of the parties”, the court concluded that “applying the force-majeure clause to excuse plaintiff’s 

obligation to pay pursuant to the contract’s take-or-pay provision would nullify a central term of 

the contract ... and relieve the plaintiff from the very risk it contracted to assume.” Id. at 451, 

453 (citations and quotations omitted). The court therefore assumed that the provision was 

enforceable. 

In support of its argument that the take-or-pay provisions are unenforceable, Kyocera 

cites Michigan’s adoption of the Uniform Commercial Code (“UCC”), Michigan Compiled Law 

§ 440.2718(1). That provision provides as follows: 

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, the difficulties of proof of loss, and the inconvenience or 
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nonfeasibility of otherwise obtaining an adequate remedy. A term fixing 

unreasonably large liquidated damages is void as a penalty. 

Id. However, as explained by the Fifth Circuit Court of Appeals in interpreting an identical 

Texas provision in the context of oil and gas contracts, where a take-or-pay provision is a 

promise of performance and not intended to serve as a measure of damages, it is not an 

unenforceable penalty within the meaning of the UCC. See Universal Res. Corp. v. Panhandle 

E. Pipe Line Co., 813 F.2d 77, 80 (5th Cir. 1987). In other words, take-or-pay provisions are 

more appropriately considered as the nature of the purchaser’s performance obligation rather 

than as a form of agreed-upon remedy. Id. See also Prenalta Corp. v. Interstate Gas Co., 944 

F.2d 677, 688-89 (10th Cir. 1991) (observing that “take-or-pay” contracts are alternative 

performance contracts and distinguishing between “pay” alternative and liquidation of damages). 

 Even so, Kyocera argues that the take-or-pay provisions should be treated as liquidated 

damages provisions within the meaning of § 440.2718(1) because they do not offer any real 

performance option. To the contrary, there are circumstances in which a purchaser may desire to 

pay without taking product. It would not be unreasonable, for instance, for a purchaser to pay 

without taking delivery of a product in a year when the market price is low in order to avoid 

additional, consequential costs associated with transporting and storing product it will be unable 

to use. As explained in a companion case, a purchaser may “view[] the Supply Agreements as a 

long-term net positive and see[] a greater benefit to maintaining the agreement in the short term 

in order to maintain the benefit of the agreement in the long term, even if it means not taking 

polysilicon during the interim period.” See Hemlock Semiconductor Corp. v. Deutsche Solar 

GmbH, No. 13-cv-11037, 2016 WL 374130 at *20 n.12 (E.D. Mich. July 13, 2016). Moreover, 

Kyorcera’s argument that “no purchaser would ever rationally prefer to pay full price for 

polysilicon that it will never receive rather than pay the same amount and receive the product” is 
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belied by the fact that Kyocera – a sophisticated, multi-national corporation – agreed to the 

inclusion of the take-or-pay provisions in all four supply agreements. Kyocera’s argument thus 

assumes that its own agents and representatives agreed to irrational contract provisions on four 

separate occasions. Particularly given the sophistication of the parties in this matter, this 

argument is untenable. 

 Kyocera also argues that the take-or-pay provisions do not present it with a real choice 

because the provisions do not include so-called “make-up rights”, or a provision that would 

permit Kyocera to receive the product it paid for but did not take in a subsequent year. Kyocera 

emphasizes that a number of courts have declined to enforce take-or-pay provisions that do not 

contain such a condition. See, e.g., Enpath Med. Inc. v. NeuroControl Corp., 2005 WL 1025368, 

at *4 (D. Minn. Apr. 28, 2005); Superfos Investments Ltd. v. FirstMiss Fertilizer, Inc., 821 F. 

Supp. 432, 439 (S.D. Miss. 1993), Am. Soil Processing, Inc. v. Iowa Comprehensive Petroleum 

Underground Storage Tank Fund Bd., 586 N.W.2d 325, 334 (Iowa 1998). 

The cases cited by Kyocera are not persuasive. Short of a legally valid contract defense, 

it is not the court’s role to alter agreements crafted by private parties. That is particularly true in 

a case such as this, where the parties are sophisticated corporations that are presumed to exercise 

sound business judgment. The fact that Kyocera did not negotiate for and receive a “make-up 

rights” provision does not render the Agreements illegal or unconscionable. Nor does it render 

the agreements lacking in consideration, since under Michigan law “the continuation of the 

parties’ business relationship” is a valid form of consideration. See Adell Broad. V. Apex Media 

Sales, 708 N.W.2d 778, 783 (Mich. Ct. App. 2005). 

Through the take-or-pay provisions, Kyocera bargained for the right to decline to take 

product in one year while maintaining the benefit of the supply agreements in future years. If 
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Kyocera believed that “make-up rights” were necessary, it had the ability to bargain for those 

rights at the time it entered into the agreements. The take-or-pay provision simply represents the 

parties’ bargained for allocation of risk regarding changes in the price of product over a number 

of years. Hemlock would be equally obligated to perform had the market moved in the opposite 

direction. Kyocera’s challenge to the enforceability of the take-or-pay provisions will therefore 

be dismissed. 

III. 

Also before the Court are Kyocera’s objections to the magistrate judge’s order denying 

its motion to compel discovery. The decision and order of a non-dispositive motion by a 

magistrate judge will be upheld unless it is clearly erroneous or contrary to law. See 28 U.S.C. § 

636(b)(1)(A); Fed. R. Civ. P. 72(a); Massey v. City of Ferndale, 7 F.3d 506, 509 (6th Cir. 1993). 

A district judge shall consider such objections and may modify or set aside any portion of the 

magistrate judge’s order found to be clearly erroneous or contrary to law. Fed. R. Civ. P. 72(a). 

“The ‘clearly erroneous’ standard applies only to the magistrate judge’s factual findings; legal 

conclusions are reviewed under the plenary ‘contrary to law’ standard . . . . Therefore, [the 

reviewing court] must exercise independent judgment with respect to the magistrate judge’s 

conclusions of law.” Haworth, Inc. v. Herman Miller, Inc., 162 F.R.D. 289, 291 (W.D. Mich. 

1995) (citing Gandee v. Glaser, 785 F. Supp. 684, 686 (S.D. Ohio 1992)). “An order is contrary 

to law when it fails to apply or misapplies relevant statutes, case law, or rules of procedure.” 

Ford Motor Co. v. United States, 2009 WL 2922875, at *1 (E.D. Mich. Sept. 9, 2009)). 

Through its objections, Kyocera argues that the magistrate judge erred in denying 

Kyocera discovery into Hemlock’s production costs of polycrystalline silicon. Kyocera argues 

that the production costs are relevant to its counterclaim regarding the enforceability of the take-
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or-pay provisions. However, because Kyocera’s challenge to the take-or-pay is without merit for 

the reasons stated above, its objections to the discovery order are equally without merit. 

 Kyocera also argues that the parts of the magistrate judge’s order related to discovery of 

damages information should be vacated as moot because the parties have agreed to the dismissal 

of Hemlock’s breach of contract claim. At the time the magistrate judge issued her order the 

parties’ 2015 contract dispute was still live. The fact that the parties’ later resolved that issue is 

not grounds to vacate a previous court order. Kyocera’s objections will therefore be overruled. 

IV. 

 Accordingly, it is ORDERED that Hemlock’s Motion to Dismiss, ECF No. 130, is 

GRANTED. 

It is further ORDERED that Kyocera’s second counterclaim (Declaratory Judgment that 

the “Acceleration” Clauses in Agreements I-IV Are Unenforceable Penalties), ECF No. 89, is 

DISMISSED without prejudice. 

It is further ORDERED that Kyocera’s first counterclaim (Declaratory Judgment that the 

“Take or Pay” Clauses in Agreements I-IV Are Unenforceable Penalties), ECF No. 89, is 

DISMISSED with prejudice. 

It is further ORDERED that Kyocera’s objections, ECF No. 128, are OVERRULED. 

s/Thomas L. Ludington 

 THOMAS L. LUDINGTON 

 United States District Judge 

Dated: May 2, 2017 
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PROOF OF SERVICE 

The undersigned certifies that a copy of the foregoing order was served 

upon each attorney or party of record herein by electronic means or first 

class U.S. mail on May 2, 2017. 

 s/Michael A. Sian 

 MICHAEL A. SIAN, Case Manager