## Facts

- Hemlock Semiconductor Corporation and Hemlock Semiconductor, LLC sold polysilicon used in solar panels; Kyocera Corporation manufactured solar panels.
- Kyocera entered into four long-term supply contracts with Hemlock to secure specified annual quantities of polysilicon at specified prices over roughly a decade.
- Each contract contained take-or-pay terms requiring Kyocera to either (a) take a specified quantity annually or (b) pay the full contract price for that quantity even if it did not take delivery.
- The contracts also included acceleration clauses providing that, after notice and a 180-day cure period, Hemlock could terminate for default and demand all remaining payments due for the rest of the contract term.
- After Chinese government subsidies lowered market prices, the contract price became substantially higher than prevailing prices; Kyocera sought renegotiation and received a temporary price concession.
- Hemlock later insisted on the original terms; Kyocera stopped performing.
- Hemlock treated Kyocera’s conduct as nonperformance and pursued the take-or-pay and acceleration remedies.

## Issues

1. Whether the take-or-pay “pay” option was an unenforceable penalty/liquidated-damages provision under Michigan law, or instead a valid alternative performance obligation.
2. Whether the contracts’ acceleration remedy (all remaining payments upon default and termination) was enforceable as a reasonable contractual remedy or an impermissible penalty.

## Decision

- The Sixth Circuit affirmed the enforceability of the take-or-pay provisions.
- The court held the “pay” option was alternative performance rather than damages for breach, so penalty/liquidated-damages analysis did not apply.
- The court reversed in part as to Hemlock’s recovery under the acceleration provisions and remanded for further proceedings.
- The court directed that enforcement of acceleration must be limited to prevent recovery that exceeds reasonable compensation for Hemlock’s expectancy.

## Legal Principles

- Under Michigan law, an agreed choice between two modes of performance is generally enforceable as alternative performance, not a liquidated-damages clause.
- A take-or-pay clause may be treated as a commercial risk-allocation device: paying without taking delivery can constitute performance, not breach.
- Michigan courts generally enforce sophisticated parties’ long-term commodity contracts despite adverse market shifts absent a recognized defense.
- Acceleration clauses may be scrutinized for reasonableness when they function like liquidated damages; they are unenforceable to the extent they produce overcompensation rather than a reasonable approximation of anticipated or actual harm.

## Conclusion

The Sixth Circuit enforced Kyocera’s take-or-pay obligations as valid alternative performance under Michigan law, but held that Hemlock’s acceleration-based recovery required limitation to avoid an overcompensatory, penalty-like result, warranting partial reversal and remand.


Hemlock Semiconductor Corp. v. Kyocera Corp., 747 F. App’x 285 (6th Cir. 2018)