Hanwha Azdel, Inc. v. C&D Zodiac, Inc.

UNPUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 14-1654

HANWHA AZDEL, INC., f/k/a Azdel, Inc.,

Plaintiff – Appellant,

v.

C&D ZODIAC, INC.,

Defendant – Appellee,

and

NEENAH TECHNICAL MATERIALS, INC.,

Movant – Appellee.

Appeal from the United States District Court for the Western
District of Virginia, at Lynchburg. Norman K. Moon, Senior
District Judge. (6:12−cv−00023−NKM−RSB)

Argued: March 26, 2015 Decided: June 9, 2015

Before GREGORY, KEENAN, and WYNN, Circuit Judges.

Affirmed in part, vacated in part, reversed in part, and
remanded by unpublished opinion. Judge Wynn wrote the opinion,
in which Judge Gregory and Judge Keenan joined.

ARGUED: Frank Kenneth Friedman, WOODS ROGERS, PLC, Roanoke,
Virginia, for Appellant. Bevin Ray Alexander, Jr., FREEMAN,
DUNN, ALEXANDER, GAY, LUCY & COATES, PC, Lynchburg, Virginia;
James W. Evans, CHOATE, HALL & STEWART LLP, Boston,
Massachusetts, for Appellees. ON BRIEF: Francis H. Casola, Erin
B. Ashwell, WOODS ROGERS, PLC, Roanoke, Virginia, for Appellant.
Robert P. Silverberg, Claire L. Shapiro, SILVERBERG, GOLDMAN &
BIKOFF, LLP, Washington, D.C.; J. Barrett Lucy, FREEMAN, DUNN,
ALEXANDER, GAY, LUCY & COATES, PC, Lynchburg, Virginia, for
Appellee C&D Zodiac, Inc.; Mark D. Cahill, Jared M. Barnes,
CHOATE, HALL & STEWART LLP, Boston, Massachusetts, for Appellee
Neenah Technical Materials, Inc.

Unpublished opinions are not binding precedent in this circuit.

2
WYNN, Circuit Judge:

Hanwha Azdel, Inc. (“Azdel”), the manufacturer of a

thermoplastic composite sheet product called “Aero-Lite,”

entered into an agreement with aircraft sidewall manufacturer

C&D Zodiac, Inc. (“C&D”) to use Aero-Lite to manufacture

aircraft sidewalls for American Airlines (“American”). The

relationship deteriorated when the Aero-Lite sidewalls did not

live up to American’s expectations. C&D never paid Azdel for

the sheets of Aero-Lite that it ordered or that Azdel delivered

while the parties were working together. C&D later found a

partner in Crane & Co. (“Crane”), whose product proved

successful for use in sidewall manufacturing and met American’s

expectations.

Azdel filed this lawsuit to recover inter alia 1) the

contract price of 144 sheets of 2000 grams-per-square-meter

(“gsm”) Aero-Lite it delivered to C&D and which C&D forwarded to

its forming facility to be molded into sidewalls; 2) the

contract price of the remaining sheets of Aero-Lite reflected in

C&D’s original purchase order; 3) the contract price of eight

sheets of a lighter 1320 gsm Aero-Lite product it delivered to

C&D; and 4) damages for C&D’s disclosure of Azdel’s confidential

information to Crane. The parties filed cross-motions for

summary judgment. The district court denied Azdel’s motion and

granted C&D’s motion in toto. On appeal, Azdel challenges the

3
district court’s summary judgment rulings and its denial of

Azdel’s motion to compel discovery of certain documents from

Crane.

We affirm the district court’s grant of summary judgment to

C&D on Azdel’s confidentiality claims, and further rule that the

district court did not err in denying Azdel’s motion to compel.

However, we reverse the district court’s grant of summary

judgment to C&D because we hold that C&D accepted the 144 sheets

of 2000 gsm Aero-Lite by taking actions inconsistent with

Azdel’s ownership of those sheets; accordingly, we grant summary

judgment to Azdel as to this claim. We likewise reverse the

district court’s grant of summary judgment to C&D regarding

Azdel’s delivery of the eight sheets of 1320 gsm Aero-Lite and

grant summary judgment to Azdel on this claim because C&D

accepted these sheets. Finally, we hold that the district court

acted prematurely in granting summary judgment to C&D regarding

C&D’s liability under the original purchase order. Whether C&D

terminated is a question that must be resolved by a jury. We

therefore affirm in part, reverse in part, and vacate in part

the district court’s rulings and remand for trial on the

termination issue.

I.

A.

4
 In March 2008, Azdel and C&D executed a Memorandum of

Understanding (“MOU”) memorializing the parties’ agreement to

work together to provide aircraft sidewalls for American

Airlines. The MOU was a preliminary agreement that would govern

the parties’ relationship while they worked to establish a more

permanent contract. Azdel was to manufacture sheets made of

2000 gsm Aero-Lite to be molded by C&D into aircraft sidewalls

for American. The MOU also provided that the parties would work

together to develop a “next-generation Aero-Lite material” and

set out a development schedule for that product. J.A. 2186.

The parties “anticipate[d] a 20-year commitment . . . during

which AZDEL [would] offer C&D exclusivity of supply for” various

programs. J.A. 2185 ¶¶ 2-3. Azdel also agreed to provide C&D

with “Most Favored Pricing.” J.A. 2186 ¶ 5.

The parties agreed that Azdel would manufacture 2000 gsm

Aero-Lite according to a “Specification” prepared by C&D and

modified as a result of feedback from Azdel. The Specification

was “fairly generic” and labeled as proprietary to C&D. J.A.

2033-35. Azdel warranted only that its product would comply

with the Specification and expressly disclaimed any warranty of

fitness for a particular purpose. Indeed, Paragraph 9 of the

agreement stated in no uncertain terms:

The Parties agree that suitability of the Product for
the American Airlines 757 program has been extensively
tested and investigated. AZDEL warrants only that

5
 Products sold to C&D will conform to C&D’s
specifications in effect at the time of manufacture
and agreed in writing between AZDEL and C&D. AZDEL
expressly disclaims any warranty of fitness for a
particular purpose.

J.A. 2189-90 ¶ 9 (emphasis added).

The MOU required C&D to provide six-month forecasts of its

Aero-Lite requirements because, according to the agreement,

“[t]he Parties acknowledge that AZDEL’s supply chain

requirements for [2000 gsm Aero-Lite] result in long lead

times.” J.A. 2189. As a result, such forecasts were “binding

in that C&D will be committed to later issue a purchase order

for not less than the material requirements forecasted.” J.A.

2189 ¶ 7.B. Purchase orders were to be issued at least twelve

weeks before the anticipated ship date. C&D could make

reasonable changes in quantities or delivery dates by issuing

notice to Azdel thirty days prior to the expected delivery date.

Any other changes to purchase orders that came with less than

thirty days’ notice were subject to acceptance by Azdel.

Azdel retained “[t]itle to any shipment of the Products”

until C&D paid “all sums due to Azdel for that shipment, or

until the Product is no longer in sheet form.” J.A. 2189 ¶ 8.B.

While the MOU severely limited the extent of Azdel’s

warranties, C&D was protected by broad termination rights, as

laid out in Paragraph 11 of the agreement:

6
 C. C&D shall have the right to terminate this MOU as well
as any open orders in connection thereto if: (i) the
material does not perform as predicted and is deemed not
suitable for C&D’s intended use, conversion, or processing;
and C&D has given the required 60 days’ notice and/or (ii)
the customer requests C&D to switch back to conventional
material/manufacturing methods.

J.A. 2190 ¶ 11.

In addition to establishing the parties’ rights and

obligations regarding the purchase and delivery of 2000 gsm

Aero-Lite, the MOU required the parties to maintain

confidentiality regarding certain information. Paragraph 12 of

the MOU provided that the MOU itself would remain confidential,

and referenced a “separate” “Confidentiality and Non-Disclosure

Agreement” (“NDA”) that would govern certain other

confidentiality obligations. J.A. 2191 ¶ 12. The NDA

prohibited the parties from disclosing confidential information

“conspicuously labeled” as such by the party seeking to prohibit

disclosure. J.A. 2194. The extensive list of materials that

was subject to non-disclosure included “costs and pricing” and

“prototypes.” J.A. 2194. Information “in the public domain,”

however, was not protected. J.A. 2195.

B.

On April 8, 2008, C&D issued a purchase order for 2900

sheets of 2000 gsm Aero-Lite, with deliveries staggered over

eight months (the “Original Purchase Order”). The Original

Purchase Order called for an initial 40-sheet delivery on June

7
11, 2008; a 110-sheet delivery on July 1, 2008; and a 550-sheet

delivery on October 1, 2008. The order identified the initial

40-sheet delivery as a “PRE-PRODUCTION REQUIREMENT.” J.A. 2350.

The 110 sheets scheduled for delivery on July 1st were labeled

as “FOR AUG. AND SEPT. REQUIREMENT.” J.A. 2350. According to

Chris Willis, Azdel’s project manager for Aero-Lite, the “pre-

production” label reflected that to determine the suitability of

Azdel’s Aero-Lite sheets for American, C&D would have to mold

some sheets into sidewall panels, perform initial tests, and

present a sample sidewall to American for further testing. C&D

employees shared that understanding.

On June 5, 2008, Azdel delivered a total of 144 sheets to

C&D. Without testing the sheets for conformity with the

Specification, C&D’s Quality Department forwarded the sheets on

to C&D’s forming facility to be molded into sidewalls. C&D

employees testified that C&D’s Quality Department did not

perform tests to determine whether to reject the product because

it believed the sheets of Aero-Lite were “samples, outside of

production requirements.” J.A. 2023.

At some point, C&D determined that the sheets Azdel

delivered were warped. The sheets were varyingly described as

having “an extreme ‘saddle’ type curl,” J.A. 2515, and “severely

twisted,” J.A. 1706. C&D hoped that the application of heat and

pressure during the molding process would mitigate the warpage

8
problem and proceeded to mold some of the sheets of Aero-Lite

into sidewalls. Unfortunately, as one Azdel employee put it,

the “[w]arped sheets mold[ed] into warped parts.” J.A. 1114.

C&D took a sample sidewall to American for a fit check in

late June 2008. Jay Zoller of American outlined eleven issues

with C&D’s product, including the fact that the panels were

“slightly twisted” and too heavy. J.A. 1704. Zoller asked C&D

to provide American with an action plan to address the issues he

identified. C&D sent a Change Request to American, asking that

existing Aero-Lite sidewalls be used in place of C&D’s

conventional “crushcore” product that C&D had previously

manufactured and used until a lighter weight Aero-Lite product

could be developed. The request was never signed by American.

C&D thus returned to providing conventional crushcore panels to

American.

On July 2, 2008, C&D sent a detailed e-mail to Azdel

outlining American’s problems with the sidewalls and noting that

the 2000 gsm sheets of Aero-Lite “definitely can not be used for

sidewall production.” J.A. 886. The e-mail also stated that

C&D was “investigating a number of projects to find a more

suitable application for [the 2000 gsm] sheets.” J.A. 886. C&D

further indicated that it would “continue to work with Azdel on

processing the curled material as time permits so that we all

9
get a better understanding of it, and can eliminate [the curl].”

J.A. 887.

When asked about the status of the October delivery by

other Azdel employees, Willis of Azdel stated “C&D has not

committed to taking anyone [sic] 2000 gsm at this time. . . .

All of this product should be put on hold.” J.A. 1480.

According to Willis, he had this impression based on previous

conversations with C&D personnel. Other employees at Azdel

believed that the purchase order had not been terminated,

stating, “If they want to cancel their current orders they must

update their release. All orders remain valid until the

customer cancels or revises their release.” J.A. 1478. In

response to Azdel’s request for a clarification of the status of

the order, C&D issued a revised purchase order on September 17,

2008, zeroing out all installments with a “0.00” notation (the

“Revised Purchase Order”). J.A 2353-54.

Twelve days later, C&D generated reports indicating that

the 2000 gsm Aero-Lite had been nonconforming, i.e., did not

meet the Specification. But C&D never provided those reports to

Azdel. 1

Thereafter, Azdel manufactured some lighter weight sheets

of Aero-Lite, and C&D molded and tested several of these

1
C&D conceded below that whether Azdel’s product conformed
to C&D’s specifications is a disputed issue of material fact.

10
iterations. On April 24, 2009, C&D ordered twenty sample sheets

of 1320 gsm Aero-Lite based upon a single $15,000 price for the

entire lot. In September 2008 and April 2009, Azdel issued

sample quotations and pricing letters for C&D’s purchase of 1320

gsm Aero-Lite. The pricing letter and quotations were all

marked confidential.

Azdel manufactured more than fifty sheets of the 1320 gsm

product but found only eight sheets worthy of delivery. C&D

formed these sheets into panels and informed Azdel that the

panels were tested “under American Airlines conditions” and

“passed.” J.A. 957. When C&D inquired as to whether Azdel

would produce the remaining sheets required by the twenty-sheet

order, Azdel indicated that it would not produce any more

sheets. C&D could not complete its full qualifications process

without a full delivery. Azdel billed C&D $6000 for those

sheets on a per sheet basis in August 2009. C&D told Azdel it

would pay for them after they were approved by American. Azdel

never received payment for the eight sheets it delivered.

C.

On October 30, 2009, C&D contacted Crane regarding

development of a product that would meet American’s

expectations. Crane produced a product similar to Aero-Lite

called Composite Aerospace Board (“CAB”) that ultimately proved

acceptable to American.

11
 C&D provided Crane with the same or a similar version of

C&D’s specifications that had been attached to the MOU. In

addition, during C&D’s negotiations with Crane, it provided

Crane with a spreadsheet entitled “Historic Pricing Board.” The

spreadsheet contained tiered pricing for various quantities of

product at various weights. Some of the prices were the same or

similar to prices that appeared in Azdel’s pricing letters that

had been marked confidential. C&D’s historic pricing for the

1300 gsm product in certain quantities was the same as Azdel’s

pricing for Aero-Lite, but pricing for the 1300 gsm product in

other quantities differed. The historic pricing board also

included prices for 1200 gsm and 2000 gsm products not reflected

in Azdel’s pricing letters.

In March 2010 Crane provided C&D a report of Crane’s

testing of its CAB product. The report reflected that CAB had

been tested against a sheet of Azdel’s 1350 gsm Aero-Lite, a

separate product ordered by C&D from Azdel in October 2008. C&D

at times referred to 1320 gsm as 1350 gsm because certain steps

in processing resulted in a weight increase. On the other hand,

the photographs attached to the testing report identify the

Azdel product as 1500 gsm. The Crane witness who authored the

report testified that the Azdel product tested had been “a

commercially available” product. J.A. 1902-03. There is no

12
evidence that the panel or shipping papers associated with it

were marked confidential.

D.

Azdel’s original complaint raised three causes of action

for breach of contract alleging that C&D failed to pay Azdel for

Aero-Lite sheets pursuant to the MOU (Counts I-III). Count I

alleged that C&D failed to pay Azdel for the 144 sheets of Aero-

Lite delivered under the Original Purchase Order, and for

undelivered but manufactured sheets produced pursuant to that

purchase order. Count II alleged in the alternative that if C&D

did terminate the MOU and open purchase orders, C&D was

obligated to reimburse Azdel for raw materials, work in process,

and finished goods on hand at the time of the termination in

accordance with Paragraph 11.D of the MOU. 2 Count III sought

$6000 in compensation for the sample sheets of 1320 gsm Aero-

Lite that Azdel provided pursuant to an April 24, 2009 purchase

order.

Following discovery, Azdel amended its complaint to include

two additional causes of action (Counts IV and V), alleging that

C&D breached confidentiality provisions contained in the MOU and

the parties’ non-disclosure agreement. The district court

2
Azdel makes no effort to challenge the district court’s
dismissal of Count II on appeal.

13
bifurcated the damages portion of Counts IV and V from liability

issues.

Azdel supplemented its discovery requests, now seeking

discovery from Crane. Over the course of discovery, Crane

withheld or redacted certain documents it alleged were subject

to the common interest privilege pursuant to a common legal

interest it held with SABIC, a non-party that supplied resin to

Azdel throughout the development of Aero-Lite. Azdel moved to

compel production of these documents. A magistrate judge denied

Azdel’s objection, and the district court adopted the magistrate

judge’s recommendation, holding that “the record is sufficient

to establish that the disputed documents were communicated in

furtherance of a common legal interest between Crane and SABIC.”

J.A. 1255.

The parties filed cross-motions for summary judgment. The

district court granted C&D’s motion as to all counts and denied

Azdel’s motion. This appeal ensued.

II.

We review the grant or denial of a motion for summary

judgment de novo, drawing all inferences in favor of the

nonmoving party. Okoli v. City of Baltimore, 648 F.3d 216, 220

(4th Cir. 2011). Summary judgment may be granted only where

“there is no genuine dispute as to any material fact and the

14
movant is entitled to judgment as a matter of law.” Libertarian

Party of Va. v. Judd, 718 F.3d 308, 312–13 (4th Cir. 2013)

(internal quotation marks omitted). A dispute is genuine if “a

reasonable jury could return a verdict for the nonmoving party.”

Dulaney v. Packaging Corp. of Am., 673 F.3d 323, 330 (4th Cir.

2012). A fact is material if it “might affect the outcome of

the suit under the governing law.” Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 248 (1986).

This matter is in federal court on diversity jurisdiction

pursuant to 28 U.S.C. § 1332. The parties agree that Virginia

law applies to Azdel’s claims arising from the MOU and related

purchase orders, and that California law applies to Azdel’s

claims under the NDA. 3

A.

We first address Azdel’s contention that C&D violated the

MOU’s confidentiality provision and the NDA by disclosing

confidential information to Crane during its development of CAB,

Crane’s alternative to Aero-Lite.

1.

Azdel first argues that C&D breached the NDA by disclosing

Azdel’s confidential pricing information to Crane. There is no

question that the “Historic Pricing Board” that C&D provided

3
The NDA’s choice of law provision provides that it shall
be construed in accordance with California law.

15
Crane contained prices that were the same or similar to prices

contained in two of Azdel’s pricing letters, each of which was

labeled “confidential.” J.A. 2363, 2398. Nor is there any

question that the NDA prohibited C&D from disclosing “cost and

pricing” information that Azdel marked as confidential. J.A.

2194 ¶ (C).

Yet the pricing board was not a reflection of past prices;

rather, it was an indication of what C&D would be willing to pay

for Crane’s product. Nothing in the parties’ agreements

prohibited C&D from indicating to third parties what it would be

willing to spend. 4 To the extent the pricing board contained

historic prices, C&D did not disclose that they were Azdel’s.

And while several of the prices that C&D gave Crane were the

same as Azdel’s, others were not. Thus, we find no error in the

district court’s ruling that C&D did not disclose Azdel’s

confidential pricing information in violation of the NDA.

2.

Azdel next contends that C&D violated the NDA by giving

Crane a sheet of Azdel’s prototype 1320 gsm Aero-Lite so that it

4
We do not mean to suggest that a company’s pricing scheme
cannot be the subject of a confidentiality agreement. We hold
only that no violation of the NDA occurred here, where
disclosure of prices that partially aligned with Azdel’s was
incidental to C&D’s pricing negotiations.

16
could be tested against Crane’s CAB. The parties dispute

whether C&D provided a prototype 1320 gsm sheet of Aero-Lite or

a 1350 gsm sheet of commercially available material.

As an initial matter, there is no evidence in the record to

suggest that any of the 1320 gsm sheets of Aero-Lite or any of

the shipping papers accompanying the 1320 gsm sheets that Azdel

delivered to C&D identified the sheets as confidential

prototypes. The only document marked confidential in connection

with the 1320 gsm sheets is an internal order form for the 1320

gsm sheets. However, that order form also described the 1320

gsm sheets as “commercial.” J.A. 2543.

Azdel argues that the parties did not intend for the

prototype sheets of Aero-Lite themselves to be marked as

confidential, noting that C&D’s plant manager testified that he

would not expect a confidential prototype to be stamped with the

word “confidential.” Azdel would thus read out of the NDA the

requirement that “Confidential Information . . . shall at all

times be conspicuously labeled by the disclosing Party as

‘Confidential,’” or read into it an exception for “prototypes.”

J.A. 2194.

Even assuming that such an exception could be read into the

NDA, the evidence in the record does not support an inference

that the sheet tested by Crane was a prototype sheet of 1320

gsm. Crane’s testing report identified the sheet as “1350 gsm”

17
not “1320 gsm,” and the photographs attached to the testing

report identify the Azdel product as “1500 gsm.” J.A. 1031.

While a Crane employee testified that he could not recall the

weight of the Aero-Lite sheet tested, he did recall that it was

“commercially available.” J.A. 1902-03. Furthermore, though

there is evidence in the record suggesting that C&D had, at

times, referred to Azdel’s 1320 gsm as 1350 gsm, this alone

would not support a reasonable inference that the sheet tested

by Crane was in fact 1320 gsm. 5

In sum, based on this record, no reasonable juror could

conclude that C&D’s disclosure of Azdel’s product violated the

NDA. We therefore hold that the district court did not err in

granting summary judgment for C&D on this claim.

3.

Finally, Azdel argues that C&D violated its confidentiality

obligations by disclosing specifications similar to the

Specification referenced in the MOU. Azdel concedes that it

failed to mark the Specification confidential and, therefore,

5
Azdel also argues that the 1350 gsm Aero-Lite was also not
commercially available and was therefore covered under the NDA.
This argument has been made for the first time on appeal and is
therefore waived. See Karpel v. Inova Health Sys. Servs., 134
F.3d 1222, 1227 (4th Cir. 1998) (“We have repeatedly held that
issues raised for the first time on appeal generally will not be
considered.”).

18
that the Specification does not receive protection under the

NDA. However, Azdel contends that the Specification is

nonetheless covered by Paragraph 12 of the MOU, which bars

disclosure of “this MOU.” J.A. 2191 ¶ 12. Because the

Specification was referenced in and attached to the MOU, Azdel

reasons that it is a part of the MOU for purposes of Paragraph

12.

In support of this argument, Azdel cites Countryside

Orthopaedics, P.C. v. Peyton, in which the Supreme Court of

Virginia stated, “where two papers are executed at the same time

or contemporaneously between the same parties, in reference to

the same subject matter, they must be regarded as parts of one

transaction, and receive the same construction as if their

several provisions were in one and the same instrument.” 541

S.E.2d 279, 284 (Va. 2001) (internal quotation marks omitted).

This uncontroversial statement of Virginia contract law has no

bearing on whether the Specification is subject to the MOU’s

confidentiality provision. Countryside Orthopaedics was merely

referencing the familiar maxim that “[w]here a business

transaction is based upon more than one document executed by the

parties, the documents will be construed together to determine

the intent of the parties.” Id. (internal quotation marks

omitted).

19
 The question before us is not whether the MOU and the

Specification ought to be construed alongside one another as

part of the same transaction. Rather, the success of Azdel’s

claim hinges on whether, by using the term “MOU” in Paragraph

12, the parties intended to allow Azdel to prevent disclosure of

C&D’s specifications. We conclude that they did not.

Crucially, the Specification was conspicuously marked as

proprietary to C&D and included the following disclaimer: “THE

INFORMATION CONTAINED HEREIN MUST NOT BE REPRODUCED OR COPIED OR

OTHERWISE DISCLOSED IN WHOLE OR IN PART WITHOUT THE WRITTEN

APPROVAL OF C&D ZODIAC, INC.” J.A. 2198. In fact, the MOU

refers to the Specification as “C&D’s specifications.” 2189 ¶

9. In addition, Paragraph 12 of the MOU refers to attachments

to the MOU as “separate” from the MOU. For example, Paragraph

12 provides, “Refer to Attachment ‘A’ for details in the form of

a separate Confidentiality and Non-Disclosure Agreement between

the Parties.” J.A. 2191 (emphasis added). 6

In sum, it is clear that the parties did not intend for the

term “this MOU” to apply to C&D’s specifications. Thus, the

district court correctly held that disclosure of C&D’s

6
Because we hold that C&D did not breach its
confidentiality obligations to Azdel, we need not reach the
issue of whether the district court erred in dismissing Azdel’s
claims for failure to put forward evidence that C&D’s breach
caused actual damages.

20
specifications did not violate the MOU’s confidentiality

provision.

B.

We next address Azdel’s claim that it is entitled to the

contract price of the 144 sheets of 2000 gsm Aero-Lite it

shipped to C&D and which C&D forwarded to its forming facility

to be molded into aircraft sidewalls.

Generally, where a buyer accepts goods but does not pay for

them, the seller is entitled to recover the contract rate for

the goods. See Va. Code § 8.2-607(1) (“The buyer must pay at

the contract rate for any goods accepted.”); id. § 8.2-703

(remedies of seller); see also Green Hill Corp. v. Greenko

Corp., 891 F.2d 286 (4th Cir. 1989) (unpublished). Under the

Virginia Uniform Commercial Code, acceptance of goods occurs

when the buyer

(a) after a reasonable opportunity to inspect the goods
signifies to the seller that the goods are conforming or
that he will take or retain them in spite of their
nonconformity; or

(b) fails to make an effective rejection, but such
acceptance does not occur until the buyer has had a
reasonable opportunity to inspect them; or

(c) does any act inconsistent with the seller’s ownership .
. . .

Va. Code § 8.2-606(1).

A reasonable inspection may occur “at any reasonable place

and time and in any reasonable manner,” id. § 8.2-513(1), and

21
the “place or method of inspection” may be “fixed by the

parties.” Id. § 8.2-513(4).

Notably, Official Comment 4 to Va. Code § 8.2-606 states

that “the provisions of paragraph (c) are subject to the

sections dealing with rejection by the buyer which permit the

buyer to take certain actions with respect to the goods pursuant

to his options and duties imposed by those sections, without

effecting an acceptance of the goods.” In other words, where a

buyer’s reasonable inspection would be otherwise inconsistent

with the seller’s ownership of the goods, such inspection on the

part of the buyer will not be deemed an acceptance. However,

the meaning of “inspection” is limited to “the buyer’s check-up

on whether the seller’s performance is in accordance with [the

parties’] contract.” Official Comment 9 to § 8.2-513.

Azdel contends that when C&D’s quality department forwarded

the sheets of Aero-Lite to its forming facility to be molded

into sidewalls, C&D acted inconsistently with Azdel’s ownership

of the sheets and thereby accepted them. We agree.

C&D’s molding of the sheets of Aero-Lite was clearly

inconsistent with Azdel’s ownership of the Aero-Lite sheets.

Molding the Aero-Lite into sidewalls was a substantial

modification that irreversibly altered the condition of Azdel’s

product. Moreover, the parties contemplated that the molding of

the sheets of Aero-Lite constituted a point of no return with

22
respect to ownership of Azdel’s product. Azdel lost title as

soon as they were no longer in sheet form. See J.A. 2189 ¶ 8

(stating that title to Azdel’s product will remain with Azdel

until the “Product is no longer in sheet form”). Virginia

precedent supports this conclusion. See, e.g., Moore & Moore

General Contractors, Inc. v. Basepoint, Inc., 485 S.E.2d 131,

133 (Va. 1997) (holding that a contractor’s installation of

nonconforming cabinets constituted an act inconsistent with

subcontractor’s ownership and amounted to acceptance of goods);

see also Laurence Anderson on the Uniform Commercial Code 3d., §

2-606:64 “Modification of Goods” (“When the buyer has not

rejected the goods and has made a substantial modification to

them, the buyer is deemed to have accepted the goods.”).

The only way that C&D would not be required to pay for the

delivered sheets of 2000 gsm Aero-Lite is if its actions in

molding the sheets into sidewalls and presenting them to

American for a fit check constituted a reasonable inspection of

the goods, or if such a method of inspection was “fixed by the

parties.” Va. Code § 8.2-513(4). Below, the district court

concluded that “where [C&D] was not otherwise allowed to fully

test any Aero-Lite sheets, the type of reasonable inspection

agreed upon by the parties included the molding trials that

Defendant conducted as well as the fit check to see how the

molded sheets would perform upon installation.” J.A. 2159. The

23
district court relied in large part on the fact that the

purchase order issued by C&D states that the first scheduled

delivery of Aero-Lite was for “PRE-PRODUCTION,” and that the

parties understood that “pre-production” was a term designed to

allow C&D to internally evaluate the product and allow American

to sign off on the product. J.A. 2157. Thus, according to the

district court, actions taken by C&D that were inconsistent with

Azdel’s ownership of the goods did not effect an acceptance

because C&D had not yet had the opportunity to conduct a

reasonable inspection.

Regardless of whether the initial delivery of Aero-Lite was

necessary for C&D to determine the suitability of Azdel’s

product for its own internal process or for American, the pre-

production requirement has no bearing on whether the product

that Azdel delivered to C&D conformed to the parties’ contract,

i.e., complied with the Specification. Under the Virginia UCC,

C&D’s reasonable inspection of Azdel’s product was limited to

determining whether the delivered sheets of 2000 gsm Aero-Lite

conformed to the Specification. It does no good to say that

C&D’s molding of the sheets of Aero-Lite into sidewalls did not

constitute an acceptance because “[C&D] was not otherwise

allowed to fully test any Aero-Lite sheets.” J.A. 2159. To the

contrary, the parties stipulated in their agreement that the

suitability of Azdel’s product had been extensively tested.

24
There is also no indication in the record that C&D would have

been prevented from testing the 2000 gsm sheets of Aero-Lite to

determine whether it complied with the Specification before

molding them into sidewalls. To permit C&D to condition its

acceptance of Azdel’s product on its determination that the

product is suitable to American would entirely eviscerate the

MOU’s warranty provision and the parties’ bargained-for

allocation of risk.

The decision of the Supreme Court of Virginia in Twin Lakes

Manufacturing Co. v. Coffey, a case relied upon by C&D on appeal

and cited by the district court below, is inapposite. 281

S.E.2d 864 (Va. 1982). In Twin Lakes, the court held that,

given the existence of latent structural defects in a mobile

home, the buyers of the mobile home did not waive the implied

warranty of merchantability when they installed the mobile home.

Id. at 866–67 (applying Va. Code. § 8.2-316(3)(b) (“[W]hen the

buyer before entering into the contract has examined the goods .

. . there is no implied warranty with regard to defects which an

examination ought in the circumstances to have revealed to

him.”)). The court did not remotely address the question

presented in this case: whether a buyer who irreversibly

modifies goods before inspecting them for compliance with the

buyer’s own specifications accepts those goods under the

Virginia UCC.

25
 Lastly, while provisions in the MOU permitted C&D to

terminate the MOU as well as any purchase orders in the event

that “the material does not perform as predicted and is deemed

not suitable for C&D’s intended use, conversion, or processing,”

J.A. 2190 ¶ 11.C, C&D’s termination rights under the MOU do not

alter its obligations with respect to delivered goods under the

Virginia UCC.

Thus, the district court erred in denying Azdel’s claim

regarding the 144 sheets of delivered 2000 gsm Aero-Lite.

C.

Azdel also contends that C&D is liable for the sheets of

Aero-Lite it ordered pursuant to the Original Purchase Order.

The district court held that C&D terminated the Original

Purchase Order on July 2, 2008, when Del Pinto of C&D e-mailed

Willis of Azdel following the disappointing fit check. In the

alternative, the district court held that C&D terminated the

Original Purchase Order on September 17 when it issued a revised

purchase order zeroing out all quantities of 2000 gsm Aero-Lite. 7

7
C&D also appears to contend in its briefs that the MOU
itself and perhaps any open purchase orders “self-terminated”
pursuant to what it terms the MOU’s “self-termination
provision.” Paragraph 6 of the MOU provides that “This MOU
shall begin on the Effective Date and shall remain in force for
the duration of the American Airlines 757 Program or until a
long-term agreement is executed between the Parties, whichever
occurs first.” J.A. 2188 ¶ 6. C&D implies that the MOU self-
terminated as of the time American expressed dissatisfaction
with the 2000 gsm Aero-Lite sidewalls, i.e., after the fit
26
 1.

To determine whether C&D terminated the Original Purchase

Order, we must first assess whether the preconditions for

termination under the contract were met—whether C&D had the

right to terminate the Original Purchase Order in the first

place. 8 The MOU gave C&D “the right to terminate this MOU as

well as any open orders in connection thereto if: (i) the

material does not perform as predicted and is deemed not

suitable for C&D’s intended use, conversion, or processing, and

C&D has given the required 60 days’ notice and/or (ii) the

customer requests C&D to switch back to conventional

material/manufacturing methods.” J.A. 2190 ¶ 11.C. The

district court concluded that both conditions were met in this

check. Yet there is nothing in the MOU to suggest that
American’s failure to immediately accept the sidewalls would
constitute an end to the American Airlines 757 Program. Thus,
C&D’s reliance on the self-termination provision is misplaced.
8
In addition to arguing that the preconditions for
termination were not met in this case, Azdel contends that
Paragraph 11 of the contract only permitted C&D to terminate the
MOU in conjunction with any purchase orders. According to
Azdel, C&D and Azdel went on to produce 1320 gsm Aero-Lite under
the terms of the MOU, and therefore, “[b]y letting [C&D] walk
away from the 2000GSM Aero-Lite purchase order when it was not
walking away from the agreement,” we would be permitting C&D to
“have its cake and eat it too.” Appellant’s Br. at 57. Azdel’s
restrictive reading of paragraph 11.C is untenable. This
provision gave C&D the right to terminate the MOU and any open
purchase orders in connection with the MOU. It does not state
that C&D may terminate open purchase orders only when it
terminates the MOU.

27
case. We will address each precondition for termination

separately.

a.

We first consider whether Azdel had the right to terminate

the MOU as well as any open purchase orders under Paragraph

11.C(i). That right hinges on a determination of whether

Azdel’s product “did not perform as predicted and is deemed not

suitable for C&D’s intended use.” J.A. 2190 ¶ 11.C(i).

Azdel contends that Paragraph 11.C(i) permitted C&D to

terminate the Original Purchase Order only if its product failed

to meet the requirements of the Specification. The plain

language of the MOU simply does not support Azdel’s

interpretation. Notwithstanding the fact that the MOU provides

that “the parties agree that the suitability of the Product for

American Airlines 757 program has been extensively tested and

investigated,” J.A. 2189 ¶ 9, Paragraph 11.C(i) clearly

contemplates that C&D may “deem” Azdel’s product nonetheless

unsuitable. Had the parties intended to limit C&D’s termination

rights to an instance in which Azdel’s product failed to comply

with the Specification, they easily could have done so. They

did not. Thus, C&D was permitted to terminate the MOU and open

purchase orders even where Azdel’s product satisfied the

Specification if it determined that the product did not perform

as predicted and C&D deemed it unsuitable.

28
 Contrary to Azdel’s assertions, the record establishes that

Azdel’s 2000 gsm Aero-Lite did “not perform as predicted” and

was “not suitable for C&D’s intended use, conversion, or

processing.” J.A. 805. Though C&D hoped that molding the Aero-

Lite into sidewalls might ameliorate the warpage problem and

notwithstanding the prior extensive testing done on the product,

the warped Aero-Lite resulted in warped sidewalls that were

unsuitable for American’s use.

b.

We next consider whether C&D had the right to terminate the

Original Purchase Order under Paragraph 11.C(ii) of the MOU,

which gives C&D the right to terminate any open purchase orders

in the event that “the customer requests C&D switch back to

conventional material/manufacturing methods.” J.A. 2190. In

contrast to Paragraph 11.C(i), the termination rights conveyed

by Paragraph 11.C(ii) do not require sixty days’ notice.

Azdel argues that American did not “request” that C&D

“switch back” to using conventional materials under

Paragraph 11.C(ii). While conceding that American never

affirmatively requested C&D to switch back to crushcore, C&D

nonetheless suggests that the term “requests” should be given a

broader meaning. After the fit check, American gave C&D

feedback and required C&D to create an action plan that, among

other things, reduced the weight of the product. By requiring a

29
product of a different weight, C&D contends American was

essentially requesting that C&D revert to crushcore. C&D also

points to the fact that American had the “ultimate” decision of

what product it would use in its aircraft. J.A. 736. In other

words, according to C&D, because American took actions that

resulted in C&D reverting back to crushcore, and because

American ultimately had discretion as to whether to use

crushcore in its planes, American did in fact, in some sense of

the word, “request” that C&D “switch back” to crushcore.

C&D ignores uncontested evidence in the record precluding

such a holding. Indeed, American’s own employee testified that

American did not make the decision to reject Aero-Lite, rather,

it “assumed [C&D] determined that it would not meet our needs,

because they changed materials.” J.A. 1653. Furthermore, it

was C&D that proposed it have crushcore on hand in the event

that the Aero-Lite material did not meet American’s

expectations, and it was C&D’s choice to supply crushcore while

Aero-Lite was being developed. Given the extent of C&D’s

influence on the decision to use crushcore while Aero-Lite

development continued, it can hardly be said that American

“requested” that C&D “switch back” to conventional manufacturing

methods within the meaning of the MOU. American was open to

accepting an Aero-Lite based product that met its needs.

30
 Because C&D did not have termination rights under Paragraph

11.C(ii), it could not terminate the Original Purchase Order

without giving Azdel sixty days’ notice of its intent to do so.

2.

We must next consider whether C&D provided an effective

notice of termination under the Virginia UCC. The district

court concluded and C&D maintains that effective notice of

termination was given on July 2, 2008, when Del Pinto of C&D

sent an e-mail to Willis of Azdel stating among other things

that Azdel’s 2000 gsm sheets of Aero-Lite “definitely can not be

used for sidewall production” and, at the very least, on

September 17, 2008, when C&D issued its revised purchase order

zeroing out all ordered quantities of Azdel’s product.

Under the Virginia UCC, “[a] person ‘notifies’ or ‘gives’ a

notice or notification to another person by taking such steps as

may be reasonably required to inform the other person in

ordinary course, whether or not the other person actually comes

to know of it.” Va. Code § 8.1A-202(d). In conducting this

analysis at the summary judgment stage we must be mindful that

under the UCC, courts typically reserve questions of

reasonableness for the finder of fact. See, e.g., Zidell

Explorations, Inc. v. Conval Int’l, Ltd., 719 F.2d 1465, 1473–74

(9th Cir. 1983) (reasonableness of notice of termination to be

decided by jury); St. Ansgar Mills, Inc. v. Streit, 613 N.W.2d

31
289, 295 (Iowa 2000) (collecting cases, from various

jurisdictions, holding that the determination of reasonableness

under the UCC is a factual question inappropriate for summary

judgment.); cf. Flowers Baking Co. of Lynchburg, Inc. v. R-P

Packing, Inc., 329 S.E.2d 462, 466-67 (Va. 1985) (whether

rejection based on nonconforming goods occurred within a

reasonable period of time is a question for the jury).

a.

We first address the July 2 e-mail. C&D did not state in

its July 2 e-mail that it was terminating the Original Purchase

Order and in fact made no reference to that order whatsoever.

The e-mail even alluded to other uses for the product,

indicating that C&D was “investigating a number of projects to

find a more suitable application for [the 2000 gsm] sheets.”

J.A. 886. The e-mail also stated that C&D would “continue to

work with Azdel on processing the curled material.” J.A. 887.

We recognize that some evidence suggests a termination.

Willis of Azdel believed that C&D had not committed to

additional sheets of Aero-Lite based on conversations he had had

with C&D personnel. Specifically, Willis stated that he “knew

the customer no longer wanted the product” “based on

communications that had taken place . . . with Danny Martin.”

J.A. 699. When asked about the status of the October delivery

by other Azdel employees, Willis stated “C&D is not committed to

32
taking anyone [sic] 2000 gsm at this time. . . . All of this

product should be put on hold.” J.A. 1480. However, others at

Azdel believed C&D remained committed to its orders of 2000 gsm

Aero-Lite, stating, “If they want to cancel their current orders

they must update their release. All orders remain valid until

the customer cancels or revises their release.” J.A. 1478.

In sum, one could conclude from the July 2 e-mail that C&D

wanted Azdel to treat the Original Purchase Order as having been

terminated. However, we are not convinced that this is the only

reasonable interpretation of the e-mail and the surrounding

circumstances. We thus conclude that the district court acted

prematurely in removing this question from the province of a

jury.

b.

On the other hand, we agree with the district court that

the Revised Purchase Order issued on September 17 effectively

terminated the Original Purchase Order. That document inserted

“0.00” as the amount due in connection with each delivery, added

“*** THIS LINE HAS BEEN REVISED ***” before each listed line

item, and in connection with all deliveries other than those

already delivered, stated, “CANCEL ORDER.” J.A. 2354. There is

only one way to read these changes to the purchase order.

Because we concluded above that C&D only had the right to

terminate the Original Purchase Order pursuant to 11.C(i), the

33
Revised Purchase Order is only effective, as a termination,

sixty days after it was issued. The district court concluded

that if the Revised Purchase Order was the only valid

termination of the Original Purchase and the sixty-day notice

requirement applied, C&D would be liable for “December 2008

through February 2009 deliveries totaling 1,650 sheets” but that

“Defendant would not be liable for the cost of the final 1,650

sheets.” J.A. 2165. In the event that a jury concludes that

C&D’s July 2 e-mail did not constitute effective notice of

termination, we agree that C&D will be liable under the Original

Purchase Order in accordance with the district court’s

assessment.

D.

Under Count III of the Complaint, Azdel seeks to recover

$6000 billed to C&D for the eight sheets of 1320 gsm Aero-Lite

delivered to C&D in August 2009. C&D contends that it has no

obligation to pay for this partial delivery of eight out of

twenty ordered sheets because the purchase order for the 1320

gsm Aero-Lite was based upon a single $15,000 price for the

entire lot, and Azdel failed to complete the order.

Under Va. Code § 8.2-601, “if the goods or the tender of

delivery fail in any respect to conform to the contract, the

buyer may (a) reject the whole; or (b) accept the whole; or (c)

accept any commercial unit or units and reject the rest.” Under

34
Section 8.2-607(2), “[a]cceptance of goods by the buyer

precludes rejection of the goods accepted and if made with

knowledge of a nonconformity cannot be revoked because of it

unless the acceptance was on the reasonable assumption that the

nonconformity would be seasonably cured but acceptance does not

of itself impair any other remedy provided by this title for

nonconformity.”

C&D contends that its order for twenty sheets of Aero-Lite

constituted a “commercial unit” under the UCC. The mere fact

that the sheets were priced as a batch of twenty, however, does

not render them a commercial unit. Further, C&D’s contention

that the twenty sheets were a unit is belied by the fact that it

told Azdel it was merely awaiting final approval from American

to “release Azdel for production,” J.A. 957, and that it would

pay for the 1320 gsm sheets when they received approval from

American.

C&D never rejected the eight sheets of Aero-Lite that

Azdel delivered. It formed them into sidewall panels, tested

them, and promised to pay for them after they received

American’s approval. Under these circumstances, C&D must pay

for the eight sheets of 1320 gsm that it accepted.

35
 III.

Finally, Azdel appeals the district court’s denial of

Azdel’s motion to compel certain Crane documents that the

district court deemed protected under the common interest

privilege. We review factual findings as to whether a privilege

applies for clear error, and the application of legal principles

de novo. In re Grand Jury Subpoena, 341 F.3d 331, 334 (4th Cir.

2003).

“The joint defense privilege, an extension of the attorney-

client privilege, protects communications between parties who

share a common interest in litigation.” In re Grand Jury

Subpoena: Under Seal, 415 F.3d 333, 341 (4th Cir. 2005) (citing

United States v. Schwimmer, 892 F.2d 237, 243–44 (2d Cir.

1989)). The privilege allows “persons with a common interest to

‘communicate with their respective attorneys and with each other

to more effectively prosecute or defend their claims.’” Id.

(quoting In re Grand Jury Subpoenas 89–3 and 89–4, John Doe 89–

129, 902 F.2d 244, 249 (4th Cir. 1990)). The proponent of the

privilege has the burden to establish that the parties had “some

common interest about a legal matter.” Sheet Metal Workers

Int’l Ass’n v. Sweeney, 29 F.3d 120, 124 (4th Cir. 1994).

Importantly, “it is unnecessary that there be actual

litigation in progress for this privilege to apply.” United

States v. Aramony, 88 F.3d 1369, 1392 (4th Cir. 1996). Indeed

36
we have recognized that “[w]hether an action is ongoing or

contemplated . . . the rationale for the joint defense rule

remains unchanged.” In re Grand Jury Subpoenas 89–3 and 89–4,

John Doe 89–129, 902 F.2d at 249.

While Azdel does not challenge the existence of a common

legal interest between Crane and SABIC, 9 it argues that Crane

failed to establish that it had a “joint legal strategy” with

SABIC. Appellant’s Br. at 31. Yet we have never held that in

order to assert the common legal interest privilege, the party

asserting the privilege must put forward evidence establishing

the details of a joint legal strategy. Moreover, such a holding

would undermine the logic of our prior cases holding that the

privilege applies even to actions which are not “ongoing.” See,

e.g., In re Grand Jury Subpoenas 89–3 and 89–4, John Doe 89–129,

902 F.2d at 249. We therefore affirm the district court’s

denial of Azdel’s motion to compel.

9
Indeed, SABIC received a letter from Azdel outlining
claims that Azdel might bring against SABIC. Because those
claims implicated Crane’s interests, Crane and SABIC entered
into a common interest agreement. Thus, there can be no doubt
that a common legal interest existed between the two entities.

37
 IV.

For the foregoing reasons, we
AFFIRM IN PART,
VACATE IN PART,
REVERSE IN PART,
AND REMAND.

38