Court Opinion

ID: 222928
Source: CourtListenerOpinion
Date Created: 2011-08-11 14:59:53+00
Date Added: 2024-06-11T17:28:57.370548
License: Public Domain

[DO NOT PUBLISH]

               IN THE UNITED STATES COURT OF APPEALS

                       FOR THE ELEVENTH CIRCUIT
                        ________________________                  FILED
                                                         U.S. COURT OF APPEALS
                               No. 11-10444                ELEVENTH CIRCUIT
                           Non-Argument Calendar              AUGUST 11, 2011
                         ________________________               JOHN LEY
                                                                 CLERK
                      D.C. Docket No. 2:09-cv-00041-JHH

NIHON RUFUTO CO., LTD.,

                                                             Plaintiff-Appellant,

                                     versus

NIDEK MEDICAL PRODUCTS, INC.,

                                                            Defendant-Appellee.

                         ________________________

                  Appeal from the United States District Court
                     for the Northern District of Alabama
                         ________________________

                               (August 11, 2011)

Before HULL, MARTIN and ANDERSON, Circuit Judges.

PER CURIAM:

      Plaintiff-Appellant Nihon Rufuto Co., Ltd., (“Nihon Rufuto”) appeals the

district court’s order granting summary judgment to Defendant-Appellee Nidek
Medical Products, Inc. (“Nidek”) on Nihon Rufuto’s breach of contract claim

under Alabama law. After review, we affirm.

                                    I. FACTS

A.    Unity Project Business Proposal

      Plaintiff Nihon Rufuto, a Japanese company, imports medical equipment

from the United States and Europe. In early 2002, Nihon Rufuto approached

Defendant Nidek, an Alabama corporation, about designing and developing an

oxygen concentrator. Nihon Rufuto wanted an oxygen concentrator similar to the

Mark 6 oxygen concentrator that Nidek had developed for Koike Medical for the

Japanese market. However, Nihon Rufuto wanted its oxygen concentrator to be

smaller and quieter, with less power consumption. The parties referred to the

project as the “Unity Project.”

      On April 19, 2002, Nidek sent Nihon Rufuto a business proposal that

outlined the Unity Project, but noted that each company’s contributions were still

“to be discussed.” Nihon Rufuto’s contributions would include, inter alia, funding

the development costs, defining product specifications and coordinating third

party testing and regulatory approvals (with Japan’s Ministry of Health). Nidek’s

contributions would include, inter alia, agreeing with Nihon Rufuto’s product

specifications and project goals, preparing quality measures with Nihon Rufuto’s
                                         2
agreement, contracting with a noise consultant and an industrial design firm and

working with Nihon Rufuto’s engineers to improve system performance.

       The business proposal contained a list of specifications and other product

requirements. The specifications included an oxygen flow of three liters per

minute; an oxygen concentration of greater than ninety percent;1 a weight of less

than 32 kilograms; a noise level of 37 A-weighted decibels in an ordinary room

and 32 A-weighted decibels in an anechoic chamber; power of less than 260 watts

“at 100v 50Hz” and less than 300 watts “at 100v 60Hz”; and meeting standard

“IEC 601-1 or applicable JQA standard.” The concentrator would have four

casters for mobility and an outlet pressure of 5 Psig. The molecular sieve would

be “Oxy Sieve 7 or MDX.” The compressor would be a “Thomas 32 stroke.” The

cabinet construction and system alarm, however, were still “[t]o be discussed.”

B.     Condensed Project Plan and Budget

       On May 8, 2002, Nidek’s president, Anand Chitlangia, sent a letter to Nihon

Rufuto’s president, Tadao Ichida, containing a “condensed project plan and

budget” prepared by Nidek for the “OEM Concentrator” project, i.e., the Unity

Project. Chitlangia’s letter stated, “Although, as a result of our meeting, we have

       1
        The parties later agreed on an oxygen concentration of ninety percent, plus or minus
three percent.

                                                3
[a] basic understanding of your requirements, we are sure that as we progress

towards this project, we will have some questions, which may change the scope of

our proposal.” Nidek’s Chitlangia expressed “hope that these questions will be

resolved in the next few meetings.”

      Nidek’s Chitlangia’s letter explained that “[i]n the meantime, [Nidek] ha[d]

made certain assumptions” in developing its project plan. Nidek’s project plan

divided the Unity Project into phases with Nidek coordinating “the engineering

and design effort” with support from Nihon Rufuto’s business and technical staff.

Chitlangia’s letter outlined ten “broad categories” of items left open for either

future agreement between the parties or for future contracting with third party

consultants, including an industrial design firm, a sound control consultant,

electronic design consultant and a tooling supplier:

             1.    Specific agreement with Nihon Rufuto for product
                   specifications and project goals.
             2.    Preparation of quality measures for product and agreement
                   with Nihon Rufuto.
             3.    Contracting with an industrial design firm for the purpose
                   of preparing [sic] that meets the project goals. This will
                   include ergonomic, appearance and packing requirement
                   and other elements associated with the product and support
                   as required for preparing test models & prototypes.
             4.    Contracting the services of a sound Control consultant at
                   the early stages of the product design.
             5.    Contracting with an electronic design consultant for the
                   purpose of verifying electronic functions and preparation
                                          4
                   of a printed circuit board that would consolidate all
                   electronic functions including the Oxygen Monitoring
                   System & system alarms.
             6.    Contracting with a tooling supplier for the preparation of
                   necessary tooling.
             7.    Preparation of manufacturing processes and procedures in
                   agreement with Nihon Rufuto.
             8.    Preparation of quality procedures and documents with
                   agreement with Nihon Rufuto.
             9.    Preparation of suitable manufacturing & assembly area.
             10.   Support to Nihon Rufuto engineers for the purpose of
                   securing regulatory approvals.

Although Chitlangia’s letter states that the project is divided into five phases, the

attached budget listed only four phases, as follows:

      PHASE I   COMPONENT REVIEW & SELECTION
                         COST: $22,500 PLUS EXPENSES*
      PHASE II INDUSTRIAL DESIGN
                         COST: $43,500 PLUS EXPENSES*
      PHASE III TOOLING DESIGN
                         COST: $31,000 PLUS EXPENSES*
      PHASE IV PRE-PRODUCTION PILOT
                         COST: $16,000 PLUS EXPENSES*

      *EXPENSES: ALL OUT OF POCKET EXPENSES RELATED TO
      THIS PROJECT INCLUDING TRAVEL EXPENSES, COST OF 10
      ALPHA PROTOTYPES, INDUSTRIAL DESIGN CHARGES, FEES
      FOR NOISE & ELECTRONIC DESIGN CONSULTANT, TOOLING
      COST AND COST OF 100 PROTOTYPES.

      WE ESTIMATE THE TOTAL OF ALL EXPENSES TO BE $220,000
      THIS CAN BE REDUCED IF NIHON RUFUTO CO., LTD., WILL
      REQUIRE ONLY FEW PRE-PRODUCTION UNITS INSTEAD OF

                                         5
      ESTIMATED 100 UNITS.

The sums in the four phases total $113,000, but Nidek also would be reimbursed

for out of pocket expenses, including any sums paid to the numerous consultants.

Both Chitlangia and Ichida signed the May 8, 2002 letter.

C.    Email With Target Completion Dates

      On May 25, 2002, Chitlangia sent Ichida an email regarding the “OEM

Proposal” that listed seven general tasks with ballpark dates for their completion:

      1. We would need a written acceptance of our proposal by you. It can
      be done either by you signing our proposal sent to you and returning it
      to us or by you sending us a letter stating your acceptance. - End of May
      2. Upon receipt of the above, we will contract with the design firm for
      the purpose of creating few (between 3 and 6) designs. We will forward
      these to you for your review. - Mid June
      3. With your input, we will select one of the above as a final design. - -
      3rd week of June
      4. The next step will be to create a schematic of the entire machine,
      detailing the position of the components inside the machine. - - 1st
      week of July
      5. Upon approval of that from you, we will then proceed to make
      prototype parts and then two(2) prototypes. One will be retained at our
      factory to run tests and collect data and the second will be shipped to
      you for your engineers to run tests and collect data. - - End of July
      6. This way we can compare the results and make changes as required.
      - - 1st week of August
      7. After all the changes are made then we will build one more prototype
      and collect data which then can be submitted to MOH of [sic] approval.
      - - End of August

Chitlangia’s email stated, “Assuming that everything proceeds without any major

                                          6
glitches, we will then be ready to order tooling in September.” With regard to

payment, Chitlangia’s email added that to proceed, Nidek would need some up-

front payment:

       1. A retainer fee of $20,000 which will be adjusted at the completion of
       the project.
       2. A payment of $33,000, which represents 50% of the amount stated in
       our proposal for Phases I and II.
       3. A payment of $33,000 which will represent the balance of the amount
       stated in our proposal for Phases I and II.

       NOTE: ALL OUT OF POCKET EXPENSES WILL BE BILLED TO
       YOU AT THE END OF EACH MONTH. YOU WILL BE ADVICED
       [SIC] AND YOUR PERMISSION WILL BE REQUESTED PRIOR TO
       MAKING ANY MAJOR EXPENSES - IN SOME CASES THE
       ESTIMATED AMOUNT WILL BE GIVEN WITH A DEFINITE ‘NOT
       TO EXCEED’ LIMITS.

Ichida signed the email. From May 2002 to September 2002, Nihon Rufuto paid

Nidek $129,350 for Nidek’s work on the oxygen concentrator.2

D.     Changes to First and Second Prototypes

       In October 2002, at a trade show in Atlanta, Nidek presented Nihon Rufuto

with a prototype of the oxygen concentrator. Nihon Rufuto was pleased with the

prototype, but asked for some changes, including, inter alia, changes to the control

panel, the positioning of a “cannula hook suction cup” and a “patient humidifier

       2
        We could locate no breckdown in the record of what part was for Nidek’s work and what
part was for expense reimbursement for consultants.

                                              7
bottle.” According to the notes of Paul Holman, Nidek’s project manager on the

Unity Project, Nidek was to “continue to work on reducing component/unit

vibration and noise” and, to that end, would “investigate the possibilities of

reducing the tank boot intake size.”

       Between the end of 2002 and the Spring of 2003, Nidek revised the

prototype based on Nihon Rufuto’s comments. In March 2003, Nidek sent a

second prototype to Nihon Rufuto in Japan. In an email acknowledging receipt of

the revised prototype, a Nihon Rufuto employee stated that the revised prototype

was impressive and that President Ichida was “very happy about this

workmanship.”3 The Nihon Rufuto email: (1) discussed changes to the location of

the oxygen outlet and to the cannula check light, and (2) advised that Nihon

Rufuto would “finish revising” and return the prototype to Nidek.

E.     2003 Change to Five Liter Compressor

       Throughout the rest of 2003, Nihon Rufuto asked Nidek for even more

changes. One significant change was from a three liter compressor to a five liter

compressor. The five liter compressor increased the size of the motor, generated

more noise, used more wattage and required some different parts. At Nihon

       3
        In his deposition, Ichida explained that in this email he meant only that he was pleased
with the way the prototype looked and that he had not yet had a chance to evaluate whether the
prototype met the specifications.

                                                8
Rufuto’s request, Nidek worked on designing models with a three liter compressor

and with a five liter compressor. Nihon Rufuto also asked for a redesign of the

oxygen monitoring system board and tweaks to the cabinet design. At a July 2003

meeting in Birmingham, Nihon Rufuto inspected the three liter and five liter

compressors. By January 2004, Nihon Rufuto planned to submit first the three

liter model to Japan’s Ministry of Health and follow with the five liter model.

      In March 2004, Nidek shipped another three liter prototype with a 32 stroke

compressor to Nihon Rufuto. After testing that prototype, Nidek determined that

it met the oxygen purity, noise and wattage requirements. Nihon Rufuto’s own

test results confirmed a 90+ percent oxygen purity and its electrical test was

positive. Nihon Rufuto advised Nidek that Nihon Rufuto would proceed with the

approval application with the Ministry of Health. Over the next several months

Nidek worked to prepare the prototype and the documentation Nihon Rufuto

needed for the application.

F.    2004 Change to 2505 BLDC Compressor

      The original April 19, 2002 business proposal listed a “Thomas 32 stroke

compressor.” However, at an October 2004 meeting, Nihon Rufuto asked Nidek

to incorporate a 2505 BLDC compressor into the Unity Project. The 2505 BLDC

compressor was not yet sold on the market and a sample unit was unavailable for

                                          9
testing. Further, the 2505 BLDC compressor ran on DC power, while the Thomas

compressor in the prototypes used AC power.4 And, the 2505 BLDC compressor

was more expensive. Nihon Rufuto also asked Nidek, among other things, to

reduce the cabinet size. Nidek spent many hours making the requested changes

and researching the 2505 BLDC compressor and the adjustments needed to

incorporate it into the oxygen concentrator.

       At meetings in March and August 2005, Nihon Rufuto asked for even more

design changes and other modifications, including reducing the weight of the

concentrator by ten kilograms. Nihon Rufuto insisted on incorporating the 2505

BLDC compressor even though it was still not available on the market and also

asked for drastic changes to the oxygen monitoring system board and a total

cabinet redesign. According to Nidek’s Holman, Nihon Rufuto’s requested

changes transformed the Unity Project into “another project altogether,” and

placed “unreasonable demands” on Nidek. Although Nidek spent hundreds of

hours making Nihon Rufuto’s changes, Nihon Rufuto did not want to pay any

additional money to Nidek.

G.     2005 Termination of Unity Project

       4
       It appears that at some point the parties agreed to switch to a Thomas 34 stroke
compressor; however, both compressors used AC power.

                                               10
      On August 8, 2005, Nihon Rufuto’s president Ichida sent a letter to Nidek

stating that three years after the agreement to commence the Unity Project, “this

project and the specification as well as the exterior design is still so far away to be

accepted in [the] Japanese market.” Nidek continued to make changes to the CAD

database and oxygen monitory system board specification charges into 2006.

Once this work was completed, Nidek submitted its drawings and documents to

Nihon Rufuto. Nihon Rufuto turned these documents over to companies outside

Nidek’s control. Nihon Rufuto terminated the Unity Project and, in June 2006,

sent a demand letter for $1,7020,000 in damages.

H.    District Court Proceedings

      On January 9, 2009, Nihon Rufuto filed this diversity action against Nidek

alleging claims of breach of contract and fraud under Alabama law. The district

court concluded that Nihon Rufuto’s fraud claim was time-barred. Nihon Rufuto’s

appellate brief expressly abandons the fraud claim.

      With respect to the contract claim, Nihon Rufuto alleged that Nidek’s

oxygen concentrator prototypes never met the agreed-upon specifications and that

Nidek abandoned further efforts to fulfill its part of the contract in May 2006.

      Following discovery, Nidek moved for summary judgment, arguing, inter

alia, that the terms of the alleged contract between the parties were too indefinite
                                          11
to be enforceable under Alabama law. The district court agreed and entered

summary judgment in favor of Nidek on Nihon Rufuto’s breach of contract claim.

Nihon Rufuto filed this appeal.5

                                      II. DISCUSSION

       Under Alabama law, to establish a breach of contract claim the plaintiff

must prove: “(1) the existence of a valid contract binding the parties in the action,

(2) his own performance under the contract; (3) the defendant’s nonperformance,

and (4) damages.” S. Med. Health Sys., Inc. v. Vaughn, 669 So. 2d 98, 99 (Ala.

1995). Thus, Nihon Rufuto bore the burden to prove that it entered into a valid

contract with Nidek. We agree with the district court that Nihon Rufuto did not

present evidence of a valid contract under Alabama law.

       “A contract cannot be formed without an offer, an acceptance,

       5
         “This Court reviews de novo summary judgment rulings and draws all inferences and
reviews all evidence in the light most favorable to the non-moving party.” Moton v. Cowart, 631
F.3d 1337, 1341 (11th Cir. 2011). Summary judgment is appropriate “if the movant shows that
there is no genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). If the nonmoving party “fails to make a showing sufficient
to establish the existence of an element essential to that party’s case, . . . . [t]here can be ‘no
genuine issue as to any material fact,’ since a complete failure of proof concerning an essential
element of the nonmoving party’s case necessarily renders all other facts immaterial.” Celotex
Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct. 2548, 2552 (1986) (quoting former Rule
56(c)). Whether a contract is too indefinite to be enforced is a question of law. White Sands
Grp., LLC v. PRS II, LLC, 998 So. 2d 1042, 1052-53 (Ala. 2008). Accordingly, our review of
this legal issue is also de novo. See Zaklama v. Mount Sinai Med. Ctr., 906 F.2d 650, 652 (11th
Cir. 1990) (stating that issues of contract interpretation are questions of law generally reviewed
de novo).

                                                12
consideration, and mutual assent to those terms essential to the contract.”

Drummond Co., Inc. v. Walter Indus., Inc., 962 So. 2d 753, 754 (Ala. 2006). “To

be enforceable, the essential terms of a contract must be sufficiently definite and

certain, and a contract that leaves material portions open for future agreement is

nugatory and void for indefiniteness.” White Sands, 998 So. at 1042 (citations,

quotation marks and brackets omitted). A contract can lack definiteness as to

“time of performance, the price to be paid, work to be done, property to be

transferred, or miscellaneous stipulations in the agreement.” Id. (emphasis added).

      “The terms of a contract are reasonably certain if they provide a basis for

determining the existence of a breach and for giving an appropriate remedy.” Id.

(quotation marks and emphasis omitted); see also Smith v. Chickamauga Cedar

Co., 82 So. 2d 200, 203 (Ala. 1955) (“[I]f the offer is in any case so indefinite as

to make it impossible for a court to decide just what it means, and to fix exactly

the legal liability of the parties, its acceptance cannot result in an enforceable

agreement.”). “Additionally, in order for an alleged contract to be considered void

based on the indefiniteness of its terms, the indefiniteness must reach the point

where construction becomes futile.” Poole v. Prince, 61 So. 3d 258, 275 (Ala.

2010) (quotation marks and brackets omitted). “A court will, if possible, interpret

doubtful agreements by attaching a sufficiently definite meaning to a bargain if the

                                          13
parties evidently intended to enter into a binding contract.” Id. Further, “[w]here

it is clear that a written instrument was not intended to reflect the full agreement of

the parties” and there is evidence that the parties reached an agreement as to

omitted terms rather than left them “open for future agreement,” the parties may

use parol evidence “to clarify the omitted terms.” Id. at 279-80 (quotation marks

omitted).

      As evidence of an alleged contract with Nidek, Nihon Rufuto points to: (1)

the May 8, 2002 letter by Nidek’s Chitlangia that listed the ten broad catagories of

work associated with the project; and (2) the May 25, 2002 email by Nidek’s

Chitlangia outlining seven general tasks and ballpark completion dates in 2002. In

addition, Nihon Rufuto contends that Nidek’s April 19, 2002 business proposal

contains the product specifications and goals and is admissible parol evidence to

fill in omitted terms.

      These three documents, even taken together, are too indefinite as to the

work Nidek was to perform be enforceable. The documents reflect that many of

the engineering and design details for the oxygen concentrator were to be settled

by future agreement or were contingent upon Nihon Rufuto’s later approval. For

example, according to the April 19, 2002 business proposal, both Nihon Rufuto’s

and Nidek’s contributions were still “to be discussed,” and Nihon Rufuto would

                                          14
still need to “[d]efin[e] the product specifications” (although some specifications

were attached), “[p]rovid[e] guidance for cabinet design,” and agree with the

quality measures Nidek had yet to prepare. The attached list of specifications and

other project requirements notes that both the system alarm and the cabinet

construction are “[t]o be discussed.”

      The May 8, 2002 letter states that, after meeting with Nihon Rufuto, Nidek

had “[a] basic understanding of [Nihon Rufuto’s] requirements” for the Unity

Project, but that “as [they] progress toward this project, [Nidek] will have some

questions, which may change the scope of [Nidek’s] proposal.” After making

“certain assumptions,” (that are unspecified) the letter states that Nidek proposes

dividing the project into four phases: component review and selection, industrial

design, tooling design and pre-production pilot. The letter outlines ten “broad

categories” to be included in the proposed engineering and design effort, some of

which will require Nihon Rufuto’s approval. The first category is “[s]pecific

agreement with Nihon Rufuto for product specifications and project goals,” clearly

indicating that the parties had not yet had a meeting of the mind on those terms.

The second category reiterates that Nidek will need Nihon Rufuto’s agreement as

to quality measures. Similarly, as to the seventh and eighth categories, Nidek will

need Nihon Rufuto’s agreement as to the manufacturing process and procedures

                                         15
and the quality procedures and documents.

      The final document, Nidek’s Chitlangia’s May 25, 2002 email, outlines a

series of steps Nidek proposed to take, many of which would require Nihon

Rufuto’s approval or “input” before Nidek could proceed to the next step. For

instance, Nidek agreed to select a design with Nihon Rufuto’s input and await

Nihon Rufuto’s approval of the machine’s schematic before making prototype

parts and two prototypes. Then, depending of the results of both parties’ testing of

the prototypes, the email contemplates changes to the design, only after which

would Nidek build another prototype to be submitted for regulatory approval with

the Ministry of Health. The number of contingencies and Nihon Rufuto’s ability

to vary the plans at different phases suggests the parties did not have mutual assent

as to the work Nidek was to do.

      Nihon Rufuto argues that any uncertainties were removed by Nidek’s

development of the prototypes, for which Nihon Rufuto paid Nidek $129,350. See

Chickamauga Cedar Co., 82 So. 2d at 203 (“stating that “[o]ffers which are

originally too indefinite may later acquire precision and become valid offers, by

the subsequent words or acts of the offeror or his assent to words or acts of the

offeree”). The problem for Nihon Rufuto is that the parties’ subsequent words and

actions in developing the prototypes do not add precision. Instead, subsequent

                                         16
events only further highlight that there was no firm understanding between the

parties as to what exactly Nidek was required to design.

      Nihon Rufuto began asking for changes as soon as Nidek delivered the first

prototype and continued asking for changes over the entire three-year period

Nidek worked on the Unity Project. In addition to requests to reposition various

component parts, to redesign the oxygen monitoring system board and to

repeatedly tweak the cabinet design, Nihon Rufuto asked for three different

compressors to be incorporated into the machine—first a three liter compressor,

then a five liter compressor and finally a 2505 BLDC compressor. These

compressor changes required Nidek to redesign other aspects of the machine and

the cabinet, such that Nidek’s project manager said it became “another project

altogether.” In sum, the Unity Project was a constantly moving target, and the

parties actions during the development of the prototypes did not remove the

uncertainty as to what work Nidek was to perform under the alleged contract.

      Because the three documents Nihon Rufuto relies upon to show a contract

are too indefinite as to the essential term of what work Nidek was to perform, they

do not provide a basis for determining whether Nidek breached the alleged

contract. Thus, under Alabama law, the alleged contract is unenforceable, and the

district court properly granted summary judgment to Nidek.

                                        17
AFFIRMED.

            18