Jeddo Coal Company v. Rio Tinto Procurement (Singapore) PTE LTD et al
Filing
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MEMORANDUM OPINION - For the reasons outlined above, this Court will deny Defendants' Motion to Dismiss, (Doc. 14), except as it pertains to Quebec Metal Powders LTD. A separate Order follows. Signed by Honorable Robert D. Mariani on 3/9/17. (jfg)
THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
JEDDO COAL COMPANY,
Plaintiff,
v.
3:16·CV·621
(JUDGE MARIANI)
RIO TINTO PROCUREMENT
(SINGAPORE) PTE LTD, et aI.,
Defendants.
MEMORANDUM OPINION
I. INTRODUCTION AND PROCEDURAL HISTORY
The above captioned matter arises out of a dispute regarding a multi-year installment
contract for the provision of coal. Plaintiff, Jeddo Coal Company, filed a Complaint, (Doc.
1), on April 14, 2016, seeking damages for an anticipatory breach of contract (Count I), and
breach of contract (Counts II, III, & IV). Plaintiff also seeks a declaratory judgment that the
contract's damages provision is enforceable (Count V). Presently before the Court is a
Motion to Dismiss, (Doc. 14), filed by defendant Rio Tinto Procurement (Singapore) PTE
LTD ("Rio Tinto"), as well as defendants Rio Tinto Fer et Titane Inc., Rio Tinto Alcan Inc.,
and High Purity Iron Inc. (collectively "Relevant Companies"). Rio Tinto and the Relevant
Companies (collectively "Defendants") seek complete dismissal of Plaintiff's Complaint
pursuant to Federal Rule of Civil Procedure 12(b)(6).1 The parties have briefed the Motion
1 Defendants
also argue that one named party, Ouebec Metal Powders LTD ("OMP"), should be
dismissed from this action because it ceased to exist after it merged with its parent corporation Rio Tinto
to Dismiss and it is now ripe for decision. 2 For the following reasons the Court will deny
Defendants' Motion to Dismiss except as it pertains to Quebec Metal Powders LTD.
II. FACTUAL ALLEGATIONS
Plaintiffs Complaint alleges the following facts:
In 2011, Plaintiff entered into a multi-year installment contract for the provision of
coal ("Original Agreement"). (Doc. 1at ~~ 3-4, 16). The Original Agreement was signed by
Plaintiff and by Rio Tinto "on its own behalf and as agent severally on behalf of each of the
Relevant Companies." (/d. at mr 18-19). "Relevant Companies" was defined in the Original
Agreement as Rio Tinto Fer, and Rio Tinto Alcan. (Id. at ~ 19). The Original Agreement
provided that between 2013 and 2016, Rio Tinto, Rio Tinto Fer, and Rio Tinto Alcan would
collectively purchase 72,000 tons of coal per year from Plaintiff. (Id. at ~~ 3, 16,23).
In 2012, Rio Tinto, Rio Tinto Fer, and Rio Tinto Alcan collectively purchased 72,000
tons of coal at the Original Agreement price. (ld. at ~ 25). In 2013, however, they informed
Plaintiff that they would no longer purchase coal under the Original Agreement. (ld. at ~
26). In response, Plaintiff agreed to modify the Original Agreement's price and quantity
schedules. (Id. at ~ 27). Consequently, in 2014, Plaintiff and Rio Tinto, Rio Tinto Fer, and
Rio Tinto Alcan executed a "Variation Agreement" that modified the Original Agreement.
Fer et Titane in 2013. (Doc. 18 at 8-9). Plaintiff has agreed to dismiss its claims against OMP, but has
reserved the right to rejoin OMP as a party, if warranted, based on information learned in discovery. (Doc.
19 at 2-3 n.1). Accordingly, the Court will dismiss the complaint without prejudice as it pertains to OMP.
2 Defendants' Motion requested oral argument on this matter. (Doc. 14). At a subsequent case
management conference, however, Defendants clarified that they only requested oral argument in case the
Court had questions or wanted to hear argument. After reviewing the filings, the Court finds that oral
argument is unnecessary.
2
(Id. at,-r 28). In addition to modifying price and quantity schedules, the Variation Agreement
added High Purity Iron as a "Relevant Company," and extended the contract term to from
2016 to 2019. (ld. at,-r,-r 4,27-28,30). The Variation Agreement also contained the
following clause:
From 1 January 2014, if the Rio Tinto Party takes delivery of less tonnage
than indicated in Schedule B, Clause 2 as amended, in any Contract Year,
Rio Tinto Party will pay the Supplier the equivalent of the greater of:
i.
the Supplier's lost gross profit (defined as the contract
reference price for 9% ash less direct costs); and
ii.
US$30.
for each ton of Product not taken.
(Doc. 1at,-r 46; Doc. 1-16 § 3(e)). Except as modified by the Variation Agreement, the
Original Agreement remained in place. (ld. at,-r 31). Collectively, these agreements formed
the "Amended Agreement" or simply the "contract."
The Amended Agreement is composed of a number of documents. According to the
contract, there is a hierarchy within the documents, so that if there is a conflict among them,
certain documents prevail over others. (Doc. 1-4 at § 2.2(a)). The hierarchy is as follows:
1. Variation Agreement;
2. Agreement Form;
3. Schedule F (Special Conditions);
4. Schedule E (Site Specific Terms);
5. Schedule A (General Conditions);
6. Schedule H (Relevant Companies);
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7. Schedule B (Products and Specifications);
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8. Schedule C (prices);
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9. Schedule 0 (Delivery Schedule);
10. Schedule G (Late Charges)
11. Any other documents attached or referred to in the agreement
(Doc. 1-16 § 5; Doc. 1-4 at § 2.2(a)).
All parties performed under the contract without incident in 2014 and 2015. (Doc. 1
at ~ 57). In 2016, the contract called for Defendants to purchase 44,000 net wet tons of
coal. (Id. at ~ 40). On December 18, 2015, Rio Tinto wrote a letter informing Plaintiff that
"[u]nexpected and unforeseeable market conditions" had placed pressure on Rio Tinto's
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business and stating that it "would like to commence a discussion to review the Agreement
to reflect the current business outlook for" Rio Tinto. (Id. at ~~ 58-61; Doc. 1-17 at 1).
Representatives of Plaintiff and Rio Tinto then spoke by phone, and Rio Tinto informed
Plaintiff that, because of price considerations, Rio Tinto was not inclined to purchase coal
from Plaintiff in 2016. (Doc. 1at ~~ 62-63).
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On February 18, 2016, Plaintiff sent a follow up letter where it sought "to determine
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[Rio Tinto's] intentions regarding its contractual commitment with [Plaintiff] for the 2016
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shipping season." (Doc. 1-17 at 2; Doc. 1 at ~ 69;). On March 4,2016, Plaintiff sent
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another letter to Rio Tinto in which it sought payment for 8,800 tons of coal for which
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Plaintiff had already sent an invoice to Defendants. (Doc. 1at ~ 72-73; Doc. 1-17 at 4). In
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the same letter, Plaintiff also stated that, if Rio Tinto did not plan to purchase coal in 2016,
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Plaintiff "expect[ed] to receive the $30 per ton 'take or pay' compensation provided" for in
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the contract. (Doc.
1~17
at 4; Doc. 1 at ~ 72~74). By letter dated March 8, 2016, Rio Tinto
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stated that
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the business conditions facing us now are particularly bad and we do not
expect to be able to take product from you while those conditions persist.
Naturally it is beyond our ability to know or predict for how long those
conditions will last, but, as it stands, we will not be able to take product from
you in 2016....
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As to the invoice for the stored product and storage fees, we were obviously
very surprised to receive it after telling you that we could not take product this
year.
(Doc.
1~17
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at 6: Doc. 1 at~~ 75~77).
On March 9, 2016, Plaintiff responded with aletter "formally demand[ing] payment of
the sums we are owed under the Contract for the 2016 Shipping season" and attaching
invoices for payment. (Doc. 1 at ~~ 79-81; Doc. 1-17 at 8~ 13). By letter dated Mach 31,
2016, Rio Tinto stated that "[g]iven our clear, early indication that we would not take
tonnage in 2016, your peremptory issuing of the invoices is not in the spirt of our
relationship and we had hoped to have greater cooperation and appreciation of our difficult
position." (Doc. 1 at 82-84,86; Doc.
1~17
at 14), It went on to dispute the amounts Plaintiff
claimed, including stating that it was Rio Tinto's "view that the $30 per ton is a penalty,
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being disproportionate to the loss [Plaintiff] would incur." (Doc. 1at 84-85; Doc. 1-17 at 15).
Plaintiff then initiated the present lawsuit on April 14, 2016.
III. STANDARD OF REVIEW
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A complaint must be dismissed under Federal Rule of Civil Procedure 12(b)(6) if it
does not allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 1974, 167 L. Ed. 2d 929 (2007). "A
claim has facial plausibility when the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable for the misconduct alleged."
Ashcroft v. Iqbal, 556 U.S. 662,678, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009).
"While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need
detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitlement
to relief' requires more than labels and conclusions, and a formulaic recitation of a cause of
action's elements will not do." Twombly, 550 U.S. at 555 (internal citations and alterations
omitted). In other words, U[ijactual allegations must be enough to raise a right to relief
above the speculative leveL" Id. A court "take[s] as true all the factual allegations in the
Complaint and the reasonable inferences that can be drawn from those facts, but ...
disregard[s] legal conclusions and threadbare recitals of the elements of a cause of action,
supported by mere conclusory statements." Ethypharm S.A. France v. Abbott Laboratories,
707 F.3d 223,231 n.14 (3d Cir. 2013) (internal citations and quotation marks omitted).
Twombly and Iqbal require [a court] to take the following three steps to
determine the sufficiency of a complaint: First, the court must take note of the
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elements a plaintiff must plead to state a claim. Second, the court should
identify allegations that, because they are no more than conclusions, are not
entitled to the assumption of truth. Finally, where there are well-pleaded
factual allegations, a court should assume their veracity and then determine
whether they plausibly give rise to an entitlement for relief.
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Connelly v. Steel Valley Sch. Dist., 706 F.3d 209, 212 (3d Cir. 2013).
"[W]here the well-pleaded facts do not permit the court to infer more than the mere
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possibility of misconduct, the complaint has alleged-but it has not show[n]-that the
pleader is entitled to relief." Iqbal, 556 U.S. at 679, 129 S. Ct. at 1950 (internal citations and
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quotation marks omitted). This "plausibility" determination will be a "context-specific task
that requires the reviewing court to draw on its judicial experience and common sense." ld.
IV. ANALYSIS
Defendants first contend that the Complaint should be dismissed in its entirety as it
pertains to the Relevant Companies and then further argues that each count of the
Complaint is individually subject to dismissal. Because many of the arguments Defendants
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put forward involve the interpretation of the contract, the Court will begin with some general
legal principles that will shape its decision.
In Pennsylvania, "[t]o successfully maintain a cause of action for breach of contract
the plaintiff must establish: (1) the existence of a contract, including its essential terms, (2) a
breach of a duty imposed by the contract, and (3) resultant damages." Hart v. Arnold, 884
A.2d 316,332 (Pa. Super. Ct. 2005). "It is well established that the intent of the parties to a
written contract is to be regarded as being embodied in the writing itself, and when the
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words are clear and unambiguous the intent is to be discovered only from the express
language of the agreement." Steuart v. McChesney, 444 A.2d 659, 661 (Pa. 1982). "Where
several instruments are made as part of one transaction they will be read together, and
each will be construed with reference to the other; and this is so although the instruments
may have been executed at different times and do not in terms refer to each other." Huegel
v. Mifflin Canst. Co., 796 A.2d 350, 354-55 (Pa. Super. ct. 2002) (quoting Neville v. Scott,
127 A.2d 755,757 (Pa. Super. Ct. 1957)).
A. Relevant Companies
Defendants first argue that the Relevant Companies should be dismissed from the
action entirely because, by the terms of the contract, only Rio Tinto is obligated to purchase
coal 'from Plaintiff. (Doc. 18 at 6). Defendants point to several provisions in the contract
that they contend support their interpretation. (Id. at 6-8). Plaintiff's rebuttal points to
different provisions in the contract which it argues shows that Rio Tinto and the Relevant
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Companies had a collective obligation to purchase coal under the contract. (Doc. 19 at 7
8). Plaintiff also argues that, if the contract does not unambiguously bind the Relevant
Companies to buy coal, it is at least ambiguous and thus cannot be decided as a matter of
law. (Id. at 8).
The Agreement Form states that "Rio Tinto hereby appoints Supplier [Jeddo], and
Supplier hereby accepts such appointment, as a duly qualified supplier of the Products to
Rio Tinto on the terms and conditions set out in this Agreement." (Doc. 1-3 at 3). It further
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says that 'this benefit and other covenants and agreements of Rio Tinto contained herein
constitute full and adequate consideration for the entering into of this Agreement by"
Plaintiff. (Id.). Rio Tinto signed the Original Agreement "on its own behalf and as agent
severally on behalf of each of the Relevant Companies." (ld.). Schedule F, Section 13,
replaces Section 9 in Schedule A with the following:
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No purchase commitment
(i)
Nothing in the Agreement (a) obligates Rio Tinto or a Relevant
Company or an End User to purchase any specified volume,
market share, requirements or minimum level of product,
unless expressly provided otherwise in Section 9(ii) ....
(ii) ... the Supplier will sell and deliver to the Rio Tinto Parties ...
and the Rio Tinto Parties will purchase from Supplier, Products
(a) at the Prices specified in Schedule C and (b) in one or more
deliveries ....
(Doc. 1-13 at 3). "Rio Tinto Parties" is defined in the contract as "Rio Tinto and the Relevant
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Companies." (Doc. 1-4 at 10). Schedule H. as amended by the Variation Agreement,
defines the Relevant Companies as OIT Fer et Titane Inc} Rio Tinto Alcan Inc.• and High
Purity Iron Inc. (Doc. 1-15 at 1; Doc. 1-16 at4).
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Schedule A also states:
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Relationship of Rio Tinto and the Relevant Companies
The Parties acknowledge and agree that:
(a) Rio Tinto will have no obligation to perform on behalf of any
Relevant Company under the Agreement or any Purchase
Order; and
Fer et Titane Inc. subsequently changed its name to Rio Tinto Fer et Titane Inc. (Doc. 1-16
at 1).
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(b)
a Relevant Company will have no obligation to perform on
behalf of Rio Tinto or any other Relevant Company under the
Agreement or any Purchase Order.
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1.5 Capacity of Relevant Companies
Where Schedule H specifies that a Relevant Company enters into, and is a
party to, the Agreement on behalf of any other entity, then:
(a) that Relevant Company is a Party to the Agreement for each such
entity in the capacity specified in Schedule H.
3.1
Purchase Orders
When a Relevant Company elects to purchase Products, it will issue a
Purchase Order to the Supplier ...
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(Doc. 1-4 at 2). The Termination Clause, found in Section 16.2 of Schedule A, provides that
Rio Tinto and Plaintiff have the authority to "terminate, in whole or in part, the Agreement or
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any Purchase Order" if certain conditions are met, while the Relevant Companies only have
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the authority to "terminate a Purchase Order to which that Relevant Company is a Party" if
certain conditions are met. (ld. at 6). Finally, the background section of the Variation
Agreement states that "Rio Tinto and the Supplier are parties to the" Original Agreement.
(Doc. 1-16 at 1).
Defendants point to the general language in the Agreement Form, the background
section of the Variation Agreement, and Sections 1.4, 3.1, and 16.2 of Schedule A as proof
that only Rio Tinto is obligated under the contract to buy coal. (Doc. 18 at 6-8). Plaintiff
primarily relies on the provisions in Schedule Fto support its position that Defendants are
collectedly obligated to buy coal. (Doc. 19 at 7-8). After reviewing the provisions of the
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contract, Plaintiff's allegations, taken as true for purposes of determining the legal
sufficiency of its Complaint, state a plausible claim of breach of contract.
Both the Agreement Form and the Variation Form are signed by Rio Tinto "on its
own behalf and as agent severally on behalf of each of the Relevant Companies." Thus, the
Relevant Companies appear to be parties to the contract. Within the contract, Schedule F
specifically states that the "Rio Tinto Parties," which include all Defendants, "will purchase"
coal from Plaintiff. Due to the hierarchy of the documents within the contract, in the event of
a conflict Schedule Ftakes priority over all other documents except the Agreement Form
and the Variation Agreement. (Doc. 1-16 § 5; Doc. 1-4 at § 2.2(a)). Thus, Plaintiff has
sufficiently stated a cause of action against Rio Tinto and the "Relevant Companies."
The provisions in the two documents that do take priority over Schedule Fsimilarly
provide Defendants no help. In the Agreement Form, Defendants point to the language that
states that Plaintiff is the supplier of coal "to Rio Tinto." (Doc. 18 at 6). This, however, does
not necessarily mean that other entities are not bound to purchase coal under the contract.
Equally, the general statement that "this benefit and other covenants and agreements of Rio
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Tinto" constitute adequate consideration for the Original Agreement does not necessarily
mean that other entities are not bound to purchase coal under the contract.
Defendants also argue that the Variation Agreement acknowledges that Rio Tinto
and Plaintiff are the only parties to the Original Agreement. The contract language,
however, states that "Rio Tinto and the Supplier are parties to the" Original Agreement. It
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does not state that they are the only parties to the Original Agreement. Finally, in their reply
brief, Defendants also cites to the damages provision found in the Variation Agreement
which provides:
Compensation calculated in accordance with this Clause will be the sole
compensation to which the Supplier is entitled for Rio Tinto's failure to take
the tonnage listed in Schedule B, Clause 2 as amended, in any Contract Year
and the Supplier hereby agrees to forego all other types and kinds of payment
or compensation on whatsoever basis and howsoever calculated. Rio Tinto
will not be liable to pay any compensation of any kind if its failure to take
delivery of the tonnage set out in Schedule B, clause 2, as amended, for such
Contract Year is caused by the Supplier's inability to make the Product
available for whatever reason (including Force Majeure) or because of Force
Majeure affecting the Rio Tinto Party.
(Doc. 1-16 at 4) (emphasis added). This provision is not a clear enough indication of the
parties' intentions as to overcome the other contract language that states that the Relevant
Companies are party to the contract and that they, in combination with Rio Tinto, "will
purchase" coal from Plaintiff.
In the end, Defendants have failed to cite a clear statement that the Relevant Parties
have no obligation to buy coal under the Amended Agreement. Plaintiff has therefore
adequately pleaded a cause of action against Defendants under the plausibility standard of
Iqba/lTwomb/y. Thus, the Court will deny Defendants' Motion to Dismiss on this basis.
B. Count I
Defendants next argue that Count I of the Complaint should be dismissed because
Plaintiff has not adequately pleaded Defendants' anticipatory repudiation of the contract.
(Doc. 18 at 9). In a contract for the sale of goods, "[w]hen either party repudiates the
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contract with respect to a performance not yet due the loss of which will substantially impair
the value of the contract to the other, the aggrieved party may ... resort to any remedy for
breach ..." 13 Pa. C.S.A. § 2610(2). U[T]o constitute anticipatory breach under
Pennsylvania law there must be 'an absolute and unequivocal refusal to perform or a
distinct and positive statement of an inability to do so.'" 2401 Pa. Ave. Corp. v. Fed'n of
Jewish Agencies of Greater Phi/a., 489 A.2d 733,736 (Pa. 1985) (quoting McClelJand v.
New Amsterdam Cas. Co., 185 A. 198, (1936)); see also Harrison v. Cabot Oil & Gas Corp.,
110 A.3d 178, 184 (Pa. 2015).
There are four written statements, contained in letters and incorporated into the
Complaint, which could arguably be considered an anticipatory reputation of the contract by
Defendants:
1. In the March 8,2016, letter, Rio Tinto wrote "the business conditions facing us now
are particularly bad and we do not expect to be able to take product form you while
those conditions persist." (Doc. 1-17 at 6).
2. In that same letter, Rio Tinto wrote "[n]aturally it is beyond our ability to know or
predict for how long those conditions will last, but, as it stands, we will not be able to
take product form you in 2016." (/d.).
3. In that same letter, Rio Tinto wrote "[a]s to the invoice for the stored product and
storage fees, we were obviously very surprised to receive it after telling you that we
could not take product this year." (/d.).
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4. In a March 31,2016, letter, Rio Tinto wrote U[g]iven our clear, early indication that we
would not take tonnage in 2016, your preemptory issuing of the invoices is not in the
spirit of our relationship and we had hoped to have greater cooperation and
appreciation of our difficult position." (Doc. 1-17 at 14).
Defendants argue that none of these statements constitute an "absolute and unequivocal
refusal to perform or a distinct and positive statement of an inability to do SO."4 (Doc. 18 at
11-12). Defendants argue that, in the context of the whole letters, Rio Tinto was expressing
that they would not be able to perform under the contract while their current business
conditions persisted, but did not express a refusal to perform in the event the business
conditions changed. (ld.).
At this early stage, however, Plaintiff has adequately pleaded an anticipatory breach.
Although the first statement is somewhat equivocal, Plaintiff has pointed to three other
statements where Defendants wrote that they would not or could not purchase coal from
Plaintiff in 2016. None of these three statements is accompanied by any qualifications,
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exceptions, or equivocations; they simply state that Defendants would not or could not take
any coal in 2016. "A statement by a party that he will not or cannot perform in accordance
with agreement creates [an anticipatory] breach." Oak Ridge Const. Co. v. Tolley, 504 A.2d
4 Defendants
also make two arguments concerning the remaining time that they had to perform
under the contract. (Doc. 18 at 10-11). This, however, is irrelevant. If Defendants did express their
unequivocal refusal to perform, it makes no difference how much time they had left under the contract to
perform. 13 Pa. C.S.A. § 2610(2) gives Plaintiff the right to resort to remedies for breach at the time of the
anticipatory breach.
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1343,1346 (Pa. Super. Ct. 1985) (quoting Jonnet Dev. Corp. v. Dietrich Indus., Inc., 463
A.2d 1026, 1031 (Pa. Super. Ct. 1983)).
Next, Defendants argue that even if Plaintiff has adequately pleaded an anticipatory
breach in 2016, it has failed to allege facts entitling it to recover damages for the 2017·2019
contract years. (Doc. 18 at 12). Pennsylvania law defines an installment contract as "one
which requires or authorizes the delivery of goods in separate lots to be separately
accepted, even though the contract contains a clause 'each delivery is a separate contract'
or its equivalent." 13 Pa. C.S.A. § 2612(a). "Whenever nonconformity or default with
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respect to one or more installments substantially impairs the value of the whole contract
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there is a breach of the whole." Id. at. § 2612(c). The determination of whether a default
has sustainably impaired the value of the whole contract "call[s] for examination of all of the
facts of the case." 13 Pa. C.S.A. § 2612 Pa. Bar Ass'n Notes (1953).
Here, Plaintiff has adequately pleaded that Defendants committed an anticipatory
breach by refusing to purchase coal in 2016 for a contract that required Defendants to
purchase coal every year for years 2013·2019. Defendants argue that this alone cannot
constitute "substantial impairment" as the quantities of coal at issue for the 2016 calendar
year only represent 14.7% of the entire contract. (Doc. 18 at 13). Defendants, however cite
no case law for their proposition. At this early stage, the Court cannot say, as a matter of
law, that Defendants' alleged refusal to perform for one year on a seven year installment
contract does not substantially impair the value of the whole contract. To do so before the
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facts are developed would not enable the prescribed "examination of all of the facts of the
case."
In their reply brief, Defendants argue that Plaintiff's position on the contract's
damages clause contradicts Plaintiff's position that the contract is substantially impaired.
(Doc. 20 at 8). According to their argument, because Plaintiff maintains that the damages
clause is in place to make Plaintiff whole in the event that Defendants fail to purchase the
yearly contract amount of coal, any failure on the part of Defendants to purchase coal in a
given year cannot substantially impair the contract. (Id. at 8-9). Even assuming that
Plaintiff's claims cannot coexist, dismissal would still not be warranted at this stage. Federal
Rule of Civil Procedure 8(d)(3) states that "[a] party may state as many separate claims or
defenses as it has, regardless of consistency." Therefore, inconsistencies between
Plaintiff's claims do not subject them to dismissal at the pleading stage. See Slemmer v.
McGlaughlin Spray Foam Insulation, Inc., 955 F. Supp. 2d 452,464 (E.D. Pa. 2013)
(allowing two inconsistent claims to proceed past a motion to dismiss).
Accordingly, the Court will deny Defendants' Motion to Dismiss as it pertains to
COl:lnt I of Plaintiff's Complaint.
C. Count II and III
Defendants next argue that Counts II and III of Plaintiff's Complaint should be
dismissed. (Doc. 18 at 14). Count" of Plaintiff's Complaint is for breach of contract due to
Defendants' alleged failure to pay for coal that Plaintiff stored on its premises pursuant to
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the terms of the contracts. (Doc. 1 at W98-104). Count III seeks damages for Defendants'
alleged failure to pay the storage fees associated with Plaintiff storing the coal. (Jd. at ~~
105-113). Defendants point out that, under the contract, certain requirements need to be
met in order for the coal stored on Plaintiff's premises to be considered "stored product" and
be compensable. (Doc. 18 at 14). Defendants further argue that Plaintiff has not
adequately alleged these preconditions. (Id. at 14-15).
Defendants cite Chemtech International, Inc. v. Chemical Injection Technologies!
Inc. for the proposition that "[a] complaint that alleges a breach of contract without averring
compliance with conditions precedent does not state a valid breach of contract claim." 247
F. App'x 403,405 (3d Cir. 2007). Defendants neglect, however, to make reference to what
this Court finds is an important qualifying footnote appearing directly after this quote:
Chemtech's reliance on Fed.R.Civ.P. 9(c) is misplaced. It is true that under
Rule 9, it is sufficient to aver generally that all conditions precedent have
occurred. The deficiency here, however, lies not in Chemtech's failure to
identify the conduct establishing satisfaction of the Agreement's renewal
preconditions at the requisite level of detail, but in the omission of any
allegation that the two conditions precedent occurred at all.
Id. at 405 n.1. Indeed, Federal Rule of Civil Procedure 9(c) provides that "[i]n pleading
conditions precedent, it suffices to allege generally that all conditions precedent have
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occurred or been performed."
Schedule B, Section 9 of the contract addresses storage:
Supplier shall have the right to store Product on its premise [sic] prior to
initiation of the Shipping Season (as defined in Schedule D) ("Stored
Product"), up to a maximum of 20% of the Annual Contracted Quantity and
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subject to Schedule C, Clause 3. The Relevant Company shall purchase the
Stored Product upon initiation of storage. . . . The daily production rate of
Stored Product will vary between fifty (50) wet net tons and one hundred and
fifty (150) wet net tons ("Daily Production Lot")[.] Each Daily Production Lot
shall be sampled and analyzed by Supplier in the presence of Associated
Commodities and if any Daily Production Lot does not meet the
Specifications, it shall be rejected by the Relevant Company. A certified
survey confirming the quantity of Stored Product, the Daily Production Lot
analyses referred to above and documentation confirming the transfer of title
in the Stored Product to the the [sic] Relevant Company (but not the risk of
loss or damage) shall accompany all Invoices for Stored Product.
(Doc. 1-5 at 6). Further, Section 3 of Schedule Cstates:
The Rio Tinto Party will pay a storage fee of US$3.00 per net wet ton of
Stored Product (as defined in Schedule B) stored by Supplier prior to the start
of the Shipping Season (as de'fined in Schedule D). Notwithstanding the
actual amount of Stored Product stored during any calendar year, the
maximum annual quantity to which the Supplier may apply a storage fee is
20% of the tonnage delivered to the Rio Tinto Parties during that calendar
year.
(Doc. 1-10 at 2).
Defendants argue that Plaintiff has not pleaded that it has complied with the
requirements found in Schedule Bto establish that the coal it stored quali'fies as "stored
product" under the contract. (Doc. 18 at 14-15). Even assuming that Defendants'
interpretation of the contract is correct and that the sampling and survey requirements are
conditions precedent to Plaintiff's payment, these counts are not subject to dismissal. In
both Counts" and III Plaintiff has pleaded that it "has complied with all of the conditions
precedent to its entitlement to such payment." (Doc. 1at mI 103 & 112). Under Rule 9(c),
this is all that is required. See Video Pipeline, Inc. v. Buena Vista Home Entm't, Inc., 210 F.
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Supp. 2d 552, 562 (D.N.J. 2002) (denying a motion to dismiss when a party had "generally
averred" that it fulfilled a condition precedent); Titan Stone, Tile &Masonry, Inc. v. Hunt
Const. Grp., Inc., 2006 WL 2788369, at *6 (D.N.J. 2006) (finding that the plaintiff's
statement in its complaint that it had "fully performed all of its obligations under the
Subcontract" was sufficient to plead that it had met all the conditions precedent under the
contract). Accordingly, Count II and III are adequately pleaded.
In their reply brief, Defendants argue that Rule 9(c) does not save Plaintiff's claim.
(Doc. 20 at 10). Defendants rely on the general legal principal that "[w]here there is a
disparity between a written instrument annexed to a pleading and an allegation in the
pleading based thereon, the written instrument will control." ALA, Inc. v. CCAIR, Inc., 29
F.3d 855, 859 n.8 (3d Cir. 1994). The disparity that Defendants identify is that the invoices
for the stored product that Plaintiff attached to the Complaint do not contain a survey as
required by the contract. (Doc. 20 at 10; Doc. 1-17 at 10-13).
As discussed above, however, the contract provides that "a certified survey
confirming the quantity of Stored Product ... shall accompany all Invoices for Stored
Product." (emphasis added). Plaintiff has generally pleaded that it "has complied with all of
the conditions precedent to its entitlement to such payment." This is sufficient under Rule
9(c) to plead that Plaintiff sampled the stored product and sent the survey along with the
invoices-assuming, of course, that these actions are actually conditions precedent to
payment. Thus, the only "disparity" that Defendants can identify is that Plaintiff chose to
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attach the invoices to its Complaint, but not the surveys. This fact alone, however, is not
grounds for dismissal. Nothing contained in the invoices show that the stored product was
not sampled or show that surveys did not accompany the invoices. (Doc. 1-17 at 10-13).
For the Court to make a determination that Plaintiff failed to satisfy certain conditions of the
contract would require an examination of facts outside of the pleadings and the attached
documents. At the motion to dismiss stage, the Court cannot do this. See Video Pipeline,
Inc., 210 F. Supp. 2d at 562 ("Plaintiffs blanket assertion that defendant has failed to satisfy
this [contractual] condition calls for consideration of facts extrinsic to the pleadings and
therefore beyond the scope of this Rule 12(b)(6) motion.").
Accordingly, the Court will deny Defendants' Motion to Dismiss Counts II and III of
Plaintiffs Complaint.
D. Count IV
In Count IV of the Complaint, Plaintiff has alleged that Defendants have breached
the contract by failing to agree on a delivery schedule as required by the Amended
Agreement. (Doc. 1 at 1f1f 114-118). Defendants argue that this claim should be dismissed
because the contract contains no obligation to agree on a delivery schedule. (Doc. 18 at
16).
Schedule Dof the contract states:
Supplier shall deliver the Rio Tinto Parties' annual order of Product during the
period in which the St. Lawrence River in the Province of Quebec is free from
ice and other adverse weather conditions, normally between March and
November of each calendar year (the "Shipping Season") in accordance with
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delivery schedule(s) agreed to between Supplier and the applicable Rio Tinto
Party prior to the commencement of the Shipping Season.
(Doc. 1-11). Plaintiff has asserted that this provision presupposes that the parties will agree
on adelivery schedule. Thus, Plaintiff has sufficiently alleged a breach of Section D.
Consequently, the Court will not dismiss the claim. 5
Defendants, in their reply brief, argue that if there is indeed an obligation under the
contract to agree to a delivery schedule, the claim should still be dismissed because it is an
unenforceable "agreement to agree." (Doc. 20 at 12). Defendants rely on the legal principal
that "[a]n agreement to agree is incapable of enforcement, especially when it is stipulated
that the proposed compact shall be mutually agreeable." Onyx Oils & Resins v. Moss, 80
A.2d 815, 816 (Pa. 1951). This doctrine, however, is not applicable to these facts. In
Pennsylvania, the "agreement to agree" doctrine has only been used to determine if a
contract exists at all. See, e.g., Id.; Highland Sewer & Water Auth. v. Forest Hills Mun.
Auth., 797 A.2d 385, 390 (Pa. Commw. Ct. 2002). It has not been used to invalidate
individual provisions of an otherwise enforceable contract.
Indeed, the doctrine is only applicable when the parties only have an agreement to
agree on the essential terms of the contract. See Trowbridge v. McCaigue, 992 A.2d 199,
202 (Pa. Super. Ct. 2010) (finding that "in Highland, the court specifically held that the trial
5 The Court, for the same reasons, rejects Defendants argument that there has been no breach
because the shipping season still remains open and therefore there is still time for Defendants to agree on
a shipping schedule. (Doc. 18 at 16). The contract seems to presume the agreement on a delivery
schedule will occur "prior to the commencement of the Shipping Season." Further, as of this writing, the
2016 shipping seasons has ended. Thus, if there is an obligation to agree on a delivery schedule, it would
appear that the timing of that obligation has passed.
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court did not err in concluding that no express contract arose from the parties' conduct
contrast, the Agreement here does not indicate an intention to agree upon any essential
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terms in the future.") (emphasis original). Here, Defendants do not contend that there is not
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because they had 'indicated an intention to agree upon essential terms in the future.' ... In
an enforceable agreement between the parties or that there was never an agreement on the
essential terms of the contract. Instead, they seek to invalidate a single provision of an
otherwise detailed contract. As Defendants have not cited a reported case in Pennsylvania
where the doctrine was used to invalidate an individual provision of an otherwise
enforceable contract, the Court rejects Defendants' argument.
Finally, Defendants argue that this count should be dismissed because Plaintiff
cannot prove damages attributable to the failure to set a delivery schedule. (Doc. 18 at 16
17). To make such a determination now would require a fact based inquiry that far exceeds
what is appropriate on a motion to dismiss. Indeed, Defendants argue in their brief that
"Plaintiff has not established any evidence of damages attributable to the alleged failure to
set a delivery schedule." (Id. at 16) (emphasis added). At this stage, however, Plaintiff
does not need to establish evidence of anything. Plaintiff need only plead a plausible claim
for relief, which it has done.
Accordingly, the Court will deny Defendants' Motion to Dismiss Count IV of Plaintiff's
Complaint.
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E.CountV
Count V of Plaintiff's Complaint seeks a declaratory judgment as to whether the
damages clause of the contract is enforceable. (Doc. 1 at ~~ 119-122). As discussed
above, the Variation Agreement contained the following clause:
From 1 January 2014, if the Rio Tinto Party takes delivery of less tonnage
than indicated in Schedule B, Clause 2 as amended, in any Contract Year,
Rio Tinto Party will pay the Supplier the equivalent of the greater of:
i.
the Supplier's lost gross profit (defined as the contract
reference price for 9% ash less direct costs); and
ii.
US$30.
for each ton of Product not taken.
(Doc. 1-16 § 3(e)). Defendants seek to dismiss Count V on the basis that it is not yet ripe.
(Doc. 18 at 17).
The Declaratory Judgment Act provides, in pertinent part, U[i]n a case of actual
controversy within its jurisdiction ... any court of the United States, upon the filing of an
appropriate pleading, may declare the rights and other legal relations of any interested party
seeking such declaration, whether or not further relief is or could be sought." 28 U.S.C.
2201 (a). "The existence of a 'case or controversy' is a condition precedent to the proper
exercise of judicial power by a federal court and the Declaratory Judgment Act cannot relax
that constitutional requirement." Travelers Ins. Co. v. Obusek, 72 F.3d 1148, 1153 (3d Cir.
1995). For its part, the ripeness doctrine "is at least partially grounded in the case or
controversy requirement" and "determines when a proper party may bring an action."
Armstrong World Indus. Inc. by Wolfson v. Adams, 961 F.2d 406, 411 n.12 (3d Cir. 1992).
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"The function of the ripeness doctrine is to prevent federal courts 'through avoidance
of premature adjudication, from entangling themselves in abstract disagreements.'"
Travelers Ins. Co., 72 F.3d at 1154 (quoting Abbott Lab. v. Gardner, 387 U.S. 136, 148, 87
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S. Ct. 1507, 18 L. Ed. 2d 681 (1967)). Accordingly, courts look to the following three factors
to determine the ripeness of "a declaratory judgment action: (1) the parties must have
adverse legal interests; (2) the facts must be sufficiently concrete to allow for a conclusive
legal judgment. and (3) the judgment must be useful to the parties." Surrick v. Killion, 449
F.3d 520, 527 (3d Cir. 2006); see also Alpart v. Gen. Land Partners, Inc., 574 F. Supp. 2d
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491,507-08 (E.D. Pa. 2008).
As to the first factor, Defendants argue that the only indication that the parties'
interests are adverse as to the damages provision is a statement in the March 8,2016,
letter in which Rio Tinto stated "we reserve our rights under the contract." (Doc. 18 at 17
18). There are two deficiencies with this argument. First, it is factually inaccurate. In Rio
Tinto's letter dated March 31, 2016, Rio Tinto also stated that it was its "view that the $30
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per ton is a penalty, being disproportionate to the loss [Plaintiff] would incur." (Doc. 1-17 at
15). Thus, Defendants have already expressed a view, albeit a preliminary one, that the
damages provision is an unenforceable penalty. See In re Plywood Co. of Pa., 425 F.2d
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151, 155 (3d Cir. 1970) ("One way to contest a liquidated damage clause is to contend that
a clause labeled 'liquidated damages' is in fact a 'penalty' and therefore void and
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unenforceable.")
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Second, Defendants argument is legally inaccurate. To say that the parties are not
legally adverse as to the damages provision in the contract-the damages provision that
Defendants have not conceded is enforceable-while simultaneously litigating the breach of
contract claim stemming from the same contract borders on a bad faith argument that
exceeds the bounds of zealous advocacy. As the Third Circuit has observed:
"For there to be an actual controversy the defendant must be so situated that
the parties have adverse legal interests." 10A C. WRIGHT, A. MILLER & M.
KANE, FEDERAL PRACTICE AND PROCEDURE § 2757, at 582-83 (2d ed.1983).
Until the defendants are forced to decide whether or not to concede liability
on the breach issue, they are not so situated.
Step-Saver Data Sys., Inc. v. Wyse Tech., 912 F.2d 643, 648 (3d. Cir. 1990). Here, Plaintiff
has brought a breach of contract action against Defendants and also sought a declaratory
judgment that the Amended Agreement's damages provision is enforceable. Defendants
are now in a position to decide whether to concede liability on the breach of contract claimwhich would expose them to potential monetary liability under the damages provision-and
whether to concede that the damages provision of that same contract is enforceable. Until
such a time that Defendants concede that the damages provision is enforceable, or until the
breach of contract litigation is resolved, their interests are adverse to Plaintiff's interests.
With regards to the second and third factors, Defendants argue that the Court cannot
give a conclusive legal judgment in this case because the facts are not concrete enough
yet, and, therefore, a declaratory judgment would not be helpful to the parties. (Doc. 18 at
18; Doc. 20 at 14-15). Spedflcally, Defendants argue that because the 2016 shipping
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season is still open, Defendants may still buy coal during 2016, which, in turn, would render
the damages provision inapplicable. (Doc. 18 at 18; Doc. 20 at 14-15). Even assuming this
argument had merit, it is no longer factually accurate. As discussed in the prior section, the
shipping season is "normally between March and November of each calendar year." (Doc.
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1-11). At the time of this writing, the 2016 shipping season is closed. Thus, at this point,
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Defendants have either bought coal from Plaintiff in 2016 or they have not. Because neither
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party has notified the Court that Defendants have bought coal under the Amended
Agreement, the Court must, at this point, assume they have not. Consequently, the Court
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rejects Defendants' argument.
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In light of the above, Count V is currently ripe. Accordingly, the Court will deny
Defendants' Motion to Dismiss Count V of Plaintiff's Complaint.
V. CONCLUSION
For the reasons outlined above, this Court will deny Defendants' Motion to Dismiss,
(Doc. 14), except as it pertains to Quebec Metal Powders LTD. A separate Order follows.
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