(Semi-) recent contract-related cases: July 22, 2025

I started this post late last month but was diverted to other matters.

Sam’s Club (Walmart) loses its effort to stiff a supplier for hand sanitizer: Email exchanges can constitute “orders” under a master purchase agreement

At the start of the COVID-19 lockdown in 2020, Walmart entered into a “Supply Agreement” — basically, a framework agreement or master purchase agreement — with a company called K7.

• Under the Supply Agreement, Walmart placed successive orders adding up to millions of bottles worth of hand sanitizer in bottles.
• At first, Walmart “collected” the orders from K7’s warehouse, as called for in the Supply Agreement, and paid K7 for them.
• But as consumer demand tapered off, Walmart started failing both to pick up the orders — leaving K7’s warehouse bulging with bottles — and also to pay K7 for them.

K7 sued Walmart for breach of contract. Walmart defended by claiming that the Supply Agreement didn’t provide a quantity or price and so was unenforceable. The jury disagreed and awarded K7 more than $7 million; the Eighth Circuit affirmed judgment for that amount plus prejudgment interest and costs.See K7 Design Grp, Inc. v. Walmart, Inc., No. 24-1366, slip op. (8th Cir. Jul. 11, 2025) affirming No. 5:21-CV-5069 (W.D. Ark. Jul. 24, 2023) (entering judgment on jury verdict).

What seems to have sunk Walmart’s case was that:

• The parties’ email exchanges, with specifics about the quantity and pricing, appear to have clearly met the UCC requirements for enforceability, despite Walmart’s seemingly “strained” arguments to the contrary.
• There was no dispute that the Walmart buyer who’d dealt with K7 (including those email exchanges) had the authority to place orders.
• The Supply Agreement didn’t specify any particular form that an “Order” had to take to be binding.

Apparently Walmart wasn’t the only retailer that refused to take delivery or pay for hand sanitizer that it ordered during the pandemic: K7 also sued the Kroger grocery chain and, separately, Five Below, Inc., a Philadelphia-based chain of speciality discount stores, alleging much the same thing as in its Walmart case. See K7 Design Grp., Inc. v. Five Below, Inc., 540 F. Supp. 3d 508 (E.D. Pa. 2021) (denying Five Below’s motion to dismiss). But after a five-day trial, a jury found for Five Below on all counts; see No. 21-1406 (E.D. Pa. Jun. 21, 2023) (awarding costs to Five Below).

Lessons:

1. As a roadblock clause — or to put it more crudely, as “schmuck repellent” — it might be worthwhile for a master purchase agreement to state just what form an “order” can take — or cannot take.
2. A company that expects to get paid might want to try to negotiate for the payer to arrange a backup payment source such as a standby letter of credit or a guaranty. For detailed clause language and commentary, see the Backup Payment Protocol in Contract RPM: A Manual of Pragmatic Business Protocols (an incomplete working draft of a new version of my course materials).

A “you must arbitrate, we may sue” clause is held unconscionable

“One-way” arbitration provisions might be held unenforceable and even unconscionable. Example: In a California case, a company’s arbitration agreement with its employees required arbitration of the type of claims that the employee was likely to bring, while allowing the company to sue over many types of claim that it was likely to bring. See Silva v. Cross Country Healthcare, Inc., No. B337435, slip op. at 21-22 (Cal. App. Jun. 13, 2025) (affirming trial court’s order finding employer’s arbitration agreement unenforceable and denying employer’s motion to compel arbitration).

Yet another oral change-order case leads to costly litigation

A reality of the business world is that on occasion, parties to a services agreement will agree orally to a change order for the statement of work, but then they never get around to confirming the change in writing. Example: In an Alaska case:

• A contractor hired a subcontractor to undertake part of the construction of a remote bridge.
• The initial scope of the contracted work soon changed.
• Neither the contractor nor the subcontractor kept detailed records of the changes and their associated costs. 
• Years after the project was completed, the subcontractor sued for damages, claiming that it had not been paid for the work it completed.

See Johnson v. Albin Carlson & Co., No. S-18615, slip op. at 2 (Alaska Jun. 13, 2025) (affirming district court judgment in part, reversing and remanding in part; emphasis added).

Lesson: What’s relevant here isn’t whether the subcontractor got paid, but the fact that the parties had to litigate the case all the way to the state supreme court — which sent the case back to the trial court for further (doubtless still-more-costly) proceedings.

Roadblock clauses can come in handy — even for law firms

An Arizona supreme court case involved a patent-license agreement. Over the years, the relationship soured between the patent owner and the licensee. The patent’s owner sued, not the licensee, but the licensee’s law firm, on various theories, claiming in part that the law firm had also represented the patent owner at one time.

The law firm disputed the plaintiff’s prior-representation claim, the details of which aren’t important here. The firm got nearly the whole case thrown out on summary judgment and the rest of it by the supreme court. See McAlister v. Loeb & Loeb, LLP, No. CV-24-0048-PR (Ariz. Jul. 17, 2025).

Lesson: A roadblock clause in a contract — or for lawyers, just a statement in an email, “we’re not your lawyers” — can be cheap insurance.

For some examples of roadblock clauses that could be useful in a contract, see this partial list from the (incomplete working draft) Contract RPM manual.