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JRM Hauling & Recycling Services, Inc. v. The Newark Group, Inc.

Superior Court of Massachusetts, Suffolk

December 7, 2017

JRM Hauling & Recycling Services, Inc.
v.
The Newark Group, Inc.

          Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Leibensperger, Edward P., J.

          FINDINGS OF FACT AND RULINGS OF LAW AFTER TRIAL

          Edward P. Leibensperger Justice

         This contract dispute was tried before me, jury waived, from October 23 to 27, 2017. The dispute arises out of a contract between plaintiff, JRM Hauling & Recycling Services, Inc. (" JRM"), and defendant, The Newark Group, Inc. (" Newark"), wherein Newark agreed to purchase and JRM agreed to sell " all secondary fiber produced by [JRM] at" JRM’s location in Malden, Massachusetts (the " Agreement"). JRM claims that Newark wrongfully terminated the Agreement in January 2015. By its terms, the Agreement was to run for ten years from its execution on November 1, 2006 to October 31, 2016.

         JRM asserts its claim in two counts: breach of contract and breach of the implied covenant of good faith and fair dealing. Newark counterclaims, pursuant to a provision of the Agreement, seeking indemnification from JRM for Newark’s costs, including legal fees and disbursements, incurred defending any unsuccessful claims made by JRM.

         I. FINDINGS OF FACT

         The Agreement

         JRM, a company with headquarters in Peabody, Massachusetts, is a hauler of trash and recycled material. JRM is under contract with municipalities and businesses to pick up at curbside the trash generated by the occupants. JRM picks up trash that has been separated by the occupants to put newspaper and other paper into one bin and all other trash in another bin. The contract in this case concerns what JRM was to do with the " loose paper" picked up at curbside. Under its contracts with the municipalities, JRM was required to guarantee that the materials it collected from the residents would be recycled.

         Newark is a New Jersey corporation with corporate offices in Cranford, New Jersey. In February 2015, as discussed below, Newark was acquired by Caraustar Industries, Inc.

         In 2005, JRM learned that a facility located at 1130 Eastern Avenue in Malden, Massachusetts (" the Malden facility") might be available as a location for JRM’s operations. The facility had been operated previously as a recycling center. JRM began negotiations with the owner of the facility, Robert Heffernan, who was, at that time, a Newark employee. At around the same time in 2005, Newark was looking for sources of supply of Secondary Fiber/RMP for use by its mill in Fitchburg, Massachusetts. Secondary Fiber/RMP is a description of the loose news and other paper collected by JRM. The mill in Fitchburg manufactured recycled paper board products from the secondary fiber. In particular, the mill was producing " graphic board" to be used as game boards and covers for books.

         Jonathan Gold was a long-time executive of Newark. He started employment with Newark in 1978. In 2006, Gold was Senior Vice-President of the Recycled Fibers Division of Newark. Gold lived in Swampscott, Massachusetts. His family had a long history of working in the recycle industry. Gold knew the president and sole shareholder of JRM, James R. Motzkin, and Motzkin’s son, James (" Jimmy") S. Motzkin. In 2006, Gold became involved, on behalf of Newark, in the discussions with JRM regarding a lease of the Malden facility and a supply contract for secondary fiber for Newark.

         According to Gold, Newark wanted to secure all of the output of secondary fiber from JRM. Newark’s demand for secondary fiber for its Fitchburg mill was so large that it also contracted with other suppliers of secondary fiber to provide the material. Gold was told by his superiors to get sufficient supply under contract because it was very important to the success of the Fitchburg mill. The Fitchburg mill was looking for as much as 10, 000 tons monthly of secondary fiber. Gold testified that at the time of the supply contract with JRM it did not matter to Newark where JRM collected secondary fiber to deliver to Newark. He did not even consider the possibility that JRM could deliver more secondary fiber than the Fitchburg mill could use. I find this testimony to be credible.

         JRM simultaneously negotiated (1) an agreement with Heffernan to lease the Malden facility; (2) an agreement with Newark to provide approximately $250, 000 in financing for the purchase of equipment for the Malden facility; and (3) the supply Agreement with Newark that is the subject of this case. A deal was struck. JRM entered into a lease for the Malden facility with a term of 10 years starting on July 1, 2005. JRM would not have entered into the lease for the Malden facility if it were not also entering into the Agreement with Newark to supply the Fitchburg mill. JRM needed a guaranteed market for secondary fiber to sustain its operations at the new Malden facility.

         The Agreement was entered into on November 1, 2006. The term of the Agreement was for ten years, from November 1, 2006 to October 31, 2016. The form of the Agreement was a standard form developed and presented by Newark. Both parties, however, were represented by counsel with respect to the negotiation of the Agreement. Paragraph 1 of the Agreement is as follows:

         1. AGREEMENT TO PURCHASE AND SELL

Buyer agrees to buy, and Seller agrees to sell, all secondary fiber produced by Seller at the following location(s): 1130 Eastern Avenue, Malden, MA on the following terms and conditions:
(Emphasis in the original.) Paragraph 1 goes on to describe the price, grade and quality of the secondary fiber. Paragraph 1 also includes a promise by Newark as the buyer to purchase a minimum of 500 tons per month. The Agreement contains no specified limit in tons that constitutes a maximum amount of secondary fiber that Newark was obligated to purchase.
The Agreement includes an integration clause stating that the Agreement constitutes the entire agreement between the parties. The parties agreed that the Agreement may not be amended, nor may compliance with its terms be waived, except pursuant to a writing signed by the party to be charged. The Agreement precludes JRM from assigning any interest in the Agreement without first obtaining the written consent of Newark. The Agreement provides that " the duties, rights and remedies of the parties hereunder shall be governed by the substantive laws or the State of New Jersey, without regard to its conflicts of law principles." The Agreement provides for the waiver of trial by jury with respect to any litigation arising out of the Agreement. Finally, the Agreement provides that Newark, but not JRM, shall be indemnified for its legal fees and disbursements and other costs incurred in enforcing or defending against any unsuccessful claims made by JRM with respect to the Agreement.

         At the time JRM entered into the Agreement with Newark, the Malden facility was the only location that JRM used to receive recycled materials from its trucks picking up trash from customers pursuant to JRM’s contract with municipalities and businesses. The JRM trucks picked up trash at curbside, drove to Malden, and then simply dumped the trash on the floor of the Malden facility. Recycled paper was dumped in a separate area from other recyclables. A JRM employee then pushed with a loader vehicle the loose paper onto a conveyer belt leading to a compactor. Another employee watched the loose paper on the belt and pulled out anything that was not paper. The belt dropped the paper into the compactor. From the compactor, the paper was pushed into the trailer of a truck. The paper was not baled or otherwise processed. The paper was delivered to Newark loose.

         Under the Agreement, Newark could select a mutually agreeable location for Newark to pick up the secondary fiber from JRM. The parties subsequently agreed, however, that JRM would deliver the loose paper/secondary fiber to Newark for an additional price per ton.

         As referenced, Gold, the lead negotiator for Newark of the Agreement, testified that Newark did not care at the time of entering into the Agreement whether the secondary fiber delivered from JRM would come from the Malden facility or elsewhere. Notwithstanding the language in the Agreement stating that Newark was obligated to purchase " all secondary fiber produced by Seller at the following location(s): 1130 Eastern Avenue, Malden, MA ." Gold testified that the specification of the collection location was insignificant. I find this testimony to be credible, given the heavy demand for secondary fiber anticipated by Newark for its Fitchburg mill.[1]

         Performance of the Contract Until 2014

         For eight years, from 2006 to mid-2014, the parties operated under the Agreement with no difficulties, disagreements or disputes. JRM typically delivered secondary fiber to Newark each work day (on average, twenty days per month), taking two, and sometimes three, truck loads per day to Newark. Each delivery was approximately 20 to 25 tons of secondary fiber. Thus, using the estimate of 25 tons per load, JRM could deliver secondary fiber to Newark in the amount of approximately 1, 000 to 1, 500 tons per month. For the calendar year 2014. However, JRM’s delivery of secondary fiber to Newark averaged 933 tons per month.

         Market Changes Affecting Newark

         In or about 2010, market demand for the products manufactured by Newark at its Fitchburg mill decreased significantly. In 2011, Newark began the process of changing the products produced at its Fitchburg mill to paperboard that required much less loose paper/secondary fiber. As a result, Newark began selling the loose paper received from JRM to customers in the domestic and export market. Newark suffered losses at an increasing rate on those transactions. By January 2014, Newark’s Fitchburg mill was using only ten percent of the secondary fiber being furnished by its suppliers. Newark was experiencing substantial losses as a result of the Agreement with JRM.

         Newark Considers Getting Out of the Contract

         In February 2014, Mr. Frank Papa, Newark’s CEO, stated to Gold that " the mill needs your help to try to minimize this expense. We can’t be absorbing a $1.5 million loss for next year. I’m confident ...


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