Reference no: EM131657397

Question: In 1997, Rubbermaid launched its "Tidal Wave Project" to introduce into the marketplace new and improved sponge mops named for a wave pattern that would be cut into the sponges. This included a "butterfly" mop that was assembled for Rubbermaid by an independent corporation, New Knight, and a roller mop that was produced "in house" by Rubbermaid. Target Stores had agreed to stock Tidal Wave sponge mop line at its stores nationwide. Rubbermaid contacted Reilly Foam to see if it could fulfill its needs. Reilly Foam was able to deliver the needed products in time, and Rubbermaid began talking with Reilly Foam about a longer-term relationship. Reilly Foam needed to retool its equipment and license technology to produce the "tidal wave" sponges, and Reilly Foam was concerned that its profits on the contract would permit it to recoup its costs. On March 26, 1999, Reilly Foam sent a letter to Rubbermaid. The letter stated that it related to the two laminates that Reilly Foam was currently working on, the roller mop and the butterfly mop, and three other products produced by New Knight. It referred to and attached a list of price quotations and quantities for these products, listing annual quantities for three products that were identified as "Other Affected Products": 340,000 for the brown sponge, 350,000 for the yellow ester with wave pattern sponge, and 300,000 for the yellow ester and white "scrubmate."

The letter proposed that Rubbermaid commit to two million pieces of product under the subheading "Other Affected Products" over a period of two years and that the price include a surcharge of $.015 per part to amortize the cost of tooling for the wave pattern. It also proposed that Rubbermaid commit to buying all of its butterfly and roller mop laminates from Reilly Foam. On March 30, 1999, Tony Ferrante, a Rubbermaid product manager, responded by a letter that stated in part: This letter is to serve as Rubbermaid's commitment and authorization to procure tooling so that Reilly Foam will be in a position to make sponge products with Rubbermaid's patent pending Tidal Wave TM design. I understand that $.015 will be added to the cost of the sponge purchase price until we have made purchases of 2 million sponges, thereby covering the tooling cost of $30,000. Referencing the attached quotation, our commitment is as follows: 1. Any sponge mop product produced by New Knight, Inc. on behalf of Rubbermaid will source the sponge component from Reilly Foam. This includes the current product offering, as referenced in your quotation, as well as any future new products that New Knight will produce for us. Attached to this letter was Reilly Foam's price list, marked "Approved" and signed by Ferrante. After this exchange, Rubbermaid instructed New Knight to purchase sponges solely from Reilly Foam. Rubbermaid itself made purchases of sponges listed under the "other affected products" category. At the same time, Rubbermaid continued to purchase sponges from another supplier for use in the Tidal Wave line of mops. Moreover, Rubbermaid did not purchase 2 million sponges within the two-year window that Reilly Foam sought. Reilly Foam sued Rubbermaid for breach of contract. Will it be successful?