A federal district court in Arkansas recently granted partial summary judgement in a case that involved a contract dispute between the national warehouse club chain Sam’s West, Inc. (“Sam’s Club”) and Mint Solar, LLC (“Mint”), a Utah-based provider of home security systems and solar power equipment. Mint Solar, LLC v. Sam’s West, Inc., 2021 WL 1723095 (W.D. Ark. Apr. 30, 2021). The dispute concerned whether Mint had fulfilled the terms of the contract, which allowed Mint to operate in Sam’s Club stores.
Sam’s Club and Mint entered into a contract in September 2017 for Mint to sell its products in Sam’s Club locations. According to the agreement, Mint would offer its products in 216 locations. By May 2018, Mint was selling in 64 locations. In June 2018, Sam’s Club removed Mint from its stores, without providing a 30-day written notice and an opportunity to cure as required by the notice-and-cure contract provision. In August 2018, Sam’s Club sent Mint a letter as a written confirmation of the termination of the agreement, which was based on Sam’s Club’s determination that Mint was in material breach of the agreement and was unable to cure its breaches.
Mint filed a claim for breach of contract in 2019, arguing that Sam’s Club violated the termination clause by failing to give the requisite 30-day notice. Sam’s Club counterclaimed for breach of contract, alleging three counts: (1) Mint was insolvent as of April 2018 and thus, was in breach of the agreement; (2) Mint failed to meet the performance standards under the agreement; and (3) Mint violated the confidentiality provision by permitting information be diverted to and used by a Mint executive. Both parties subsequently filed motions for summary judgement. Sam’s Club contended that Mint’s actions had resolved it of its duties under the agreement, including the obligation to provide notice and an opportunity to cure a breach, arguing that the breaches were incurable. Mint maintained that failing to give the requisite 30-day notice put Sam’s Club in breach of the contract and entitled it to judgment as a matter of law.
In assessing Sam’s Club’s motion, the court concluded that Mint’s actions constituted a material breach by June 2018. On the first count, the court determined that Mint was insolvent as of June 2018, based on evidence relating to its financial status, including Mint’s financial statements showing negative net income, Mint’s inability to obtain loans, and records of correspondence indicating Mint’s failure to meet its financial obligations to third parties.
On the second count, the court found that Mint’s failure to staff tables in Sam’s Club locations, fulfill contracts with members, and meet financial commitments amounted to a material breach, as it defeated the purpose of the agreement. The court rejected Mint’s claim that evaluating performance standards necessitated expert testimony, stating that the issues at hand were within the common knowledge of the factfinder and did not require expert input. The court also concluded that the Mint officer’s testimony that Mint was a good company was insufficient to prove that Mint had not violated the contract.
Regarding the claim of breach of confidential information, the court concluded that a genuine factual dispute existed. Sam’s Club had only demonstrated that a Mint officer had collected names of its members for his new business but had not presented evidence that this alleged breach substantially undermined the objective of the contract.
Despite the evidence of breach, the court held that a breach was not sufficient to release Sam’s Club from the notice obligation. The contract explicitly stated that a breach would only justify termination after a written notice was received and a thirty-day “cure period” has elapsed. While the court agreed with Sam’s Club that if the breach was incurable then Sam’s Club would not be required to comply with the notice-and-cure provision, the court declined to address the applicability of the rule in this case. It looked to precedents which held that “where the breach is potentially reversible, even if that possibility seems slim,” courts have not decided the question as a matter of law, leaving the question of Mint’s ability to cure to the jury.
The court denied Mint’s motion for summary judgement because Sam’s Club would still be entitled to present the defense of incurability due to Mint’s prior breaches. The court found that Mint’s allegations that Sam’s Club failed to provide notice and that Sam’s Club suffered damages only because it “unreasonably prevented Mint from completing the work it had in progress in June 2018” hinged on the factual issue of whether the breach was incurable.
The court also noted that while Mint might be able to recover some damages for lost profits that directly stemmed from Sam’s Club’s alleged breach, the contract language was clear and unambiguous, indicating that Mint could not claim damages for expenditures incurred in anticipation of expanding its operations in Sam’s Clubs. Similarly, the court found that the contract language precluded Mint from recovering attorney’s fees.
In conclusion, the court left the issue of notice open for further consideration at trial, because the mere fact of a party’s breach did not exempt the other party from its contractual obligation to provide written notice and an opportunity to cure. However, an opportunity to cure was not mandated where it would prove futile. The presence of factual disputes in the record prevented the court from resolving the issue of futility at the summary judgement stage. Thus, the factual aspects of the dispute regarding the opportunity to cure remained for decision. Because this court concluded that the ability to cure is an issue of fact, a party that wishes to terminate a contract with a notice and cure provision cannot rely on the court to determine whether there is an exception to the notice requirement as a matter of law.
