Duke Energy Industrial Sales, LLC et al v. Massey Coal Sales Company, Inc.
Filing
186
MEMORANDUM OPINION AND ORDER: The Court does ORDER that Plaintiffs' 161 MOTION for Summary Judgment on Damages and Defendant's 179 CROSS MOTION for Summary Judgment on Plaintiffs' Damages be DENIED. Signed by Judge Irene C. Berger on 10/9/2012. (cc: attys; any unrepresented party) (slr)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
BECKLEY DIVISION
DUKE ENERGY INDUSTRIAL SALES,
LLC, et al.,
Plaintiffs,
v.
CIVIL ACTION NO. 5:11-cv-00092
MASSEY COAL SALES COMPANY, INC.,
Defendant.
MEMORANDUM OPINION AND ORDER
The Court has reviewed Plaintiffs’ Motion for Summary Judgment on Damages (Document
161-1) and Defendant’s Cross Motion for Summary Judgment on Plaintiffs’ Damages (Document
179). After consideration of the parties’ motions, memoranda in support thereof and in opposition
thereto, the attached exhibits and the entire record, the Court, for the reasons stated herein, denies
both motions.
I.
On July 18, 2012, the Court entered an Order granting Plaintiffs’ Duke Energy Industrial
Sales, LLC (“DEIS”), DEGS of Narrows, LLC (“DEGS-Narrows”), Duke Energy Generations
Services, Inc. (“DEGS”), and Duke Energy Generations Services Holding Company, Inc., (“DEGS
Holding Company”) motion for summary judgment on their claim for breach of contract (Count I)
against Defendant Massey Coal Sales Company, Inc., (“Massey”) finding that the 2005 Agreement
between DEIS and Massey was extended through 2008 by the evergreen provision contained in the
2005 Letter Amendment. (Document 154 at 14.) Thereafter, the parties agreed that the 2005
Agreement was the law of the case and the Court granted the Defendant’s Motion for Summary
Judgment on Plaintiffs’ claims for promissory estoppel and misrepresentation. (Document 166). On
August 14, 2012, the Court granted Plaintiffs leave to file a motion for summary judgment on
damages, and set an expedited briefing schedule for arguments relative to the motion. (Document
178).
In support of summary judgment on damages, Plaintiffs argue no question of material fact
remains surrounding the calculation of damages under the 2005 Agreement, and further argue they
are entitled to damages in the amount of the difference between the “cover” coal purchased and the
contract price multiplied by the amount of tons of coal that were to be sold to Plaintiffs by Massey
during 2008. Paragraph 16(a) of the 2005 Agreement provides in part:
[I]f seller fails to deliver all or part of the Quantity of Coal to be delivered hereunder
pursuant to the monthly Delivery Schedule, Seller shall pay to the buyer for each ton
of deficiency (the ‘Deficiency’) an amount equal to the positive difference, if any,
obtained by subtracting the Contract Price for the Deficiency from the Replacement
Price. ‘Replacement Price’ means the price at which Buyer, acting in a commercially
reasonable manner, purchases substitute Coal for the Deficiency[.]
(2005 CSA ¶ 16(a).) Plaintiffs contend DEIS purchased 369,142 tons of "cover" coal, which falls
within allowable requirements of a minimum of 350,000 and a maximum of 410,000 short tons of
coal for the Celanese Plant in 2008. Plaintiffs attach an exhibit which “lists the exact prices paid by
DEIS for each ton of replacement coal, as set forth in the contracts and invoices.” (Document 161-2 at
3.) Applying the formula set forth in Paragraph 16(a), Plaintiffs argue “the positive difference
between the Contract Price for the Deficiency ($54/ton) and the Replacement Price (weighted average
of $91.90/ton) for the ‘cover’ coal purchased is $13,990,801.” (Id.) Plaintiffs contend that “DEIS is
expressly entitled to recover this amount [$13,990,801] as damages for Massey's breach.” (Id.)
Further, DEIS argues “it is also entitled to an award of prejudgment interest on this amount.” (Id.)
Plaintiffs argue that West Virginia law applies to the award of prejudgment interest and is
“recoverable as a matter of law and must be calculated starting when the cause of action accrued, as
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determined by the Court.” (Id.) Plaintiffs argue the date of accrual is January 25, 2008. (Id. at 3-4.)
Thus, applying the 7% prejudgment interest rate in W. Va. Code § 56-6-31, Plaintiffs ask that
judgment be entered for the Plaintiffs in an “amount of $13,990,723.26, plus prejudgment interest at a
rate of 7% per year from January 25, 2008 through the date on which judgment is entered.” (Id. at 4.)
On August 14, 2012, Massey filed its Cross Motion for Summary Judgment on Plaintiffs’
Damages (Document 179). Massey argues it is entitled to summary judgment because Plaintiffs
cannot recover damages under the 2005 Agreement for the following reasons:
1. Plaintiffs failed to satisfy mandatory conditions precedent to recover
damages under the 2005 Agreement, and
2. Plaintiffs have used the wrong measure of damages under the 2005
Agreement and thus cannot prove their damages to a reasonable certainty.
(Document 179 at 2.) In support of its first ground, Massey argues Plaintiffs failed to satisfy
conditions precedent to their damages claims for three reasons. First, Massey argues DEIS did not
give proper notice of default under Paragraph 21 of the 2005 Agreement, which required DEIS to give
written notice of default within three business days of Massey’s default. (Document 180 at 3-4)
Second, Massey argues a party “can only accelerate the parties’ respective obligations under the
agreement only by ‘establishing and notifying the Defaulting Party of an early termination date
(which shall be no earlier than the date such written notice is received and no later than twenty (20)
days after the date of such notice) on which this and any other Coal Agreement shall terminate (‘Early
Termination Date’).’” (Id. at 4) (citing 2005 Agreement ¶ 22.) Finally, Massey argues the 2005
Agreement prescribes “a specific dispute resolution procedure that required the parties to meet and
attempt to resolve their dispute, and if the parties were unable to resolve the dispute, arbitration was
the exclusive recourse.” (Id.) (citing 2005 Agreement ¶ 36.) Massey argues it did not waive the
notice of default and the dispute resolution provisions of the 2005 Agreement, and Plaintiffs’ failure
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to comply with such conditions precludes them from recovering damages under the 2005 Agreement.
(Document 180 at 6.)
Massey also argues it is entitled to summary judgment because Plaintiffs cannot prove
damages to a reasonable degree of certainty. In support, Massey argues the Plaintiffs calculated their
damages on the amount of coal delivered to the Celanese Plant in 2008, but the 2005 Agreement was
based on the coal actually burned at the Celanese Plant. (Id. at 7-8.) Thus, Massey argues that “[b]y
utilizing the improper method and factual foundation of calculating their damages, Plaintiffs have
failed to carry their burden of proving their damages with reasonable certainty, and their claim for
damages must fail.” (Id. at 8.) Massey further argues that it is “only potentially liable for the
replacement price of 300,232 tons of coal.” (Id. at 10.)
In response to Plaintiffs motion for summary judgment, Massey argues genuine issues of
material fact preclude summary judgment in favor of Plaintiffs. First, Massey argues a genuine issue
of material fact exists with respect to privity of contract, an issue which this Court (in its July 18, 2012
Memorandum Opinion and Order (Document 180 at 11-12 citing Document 154 at 15)) held in
abeyance until trial. Second, Massey argues genuine issues of material fact remain as to whether
DEIS acted in a “commercially reasonable manner” in its purchase of replacement coal as required by
Paragraph 16(a) of the 2005 Agreement. (Document 180 at 12-14.) Third, Massey argues that even
if Plaintiffs are able to proceed with their theory of damages, genuine issues of material fact exist with
respect to the total tonnage of coal for which Massey is responsible. (Id. at 14-15.) Finally, Massey
argues that Virginia law applies to the Plaintiffs’ claim for prejudgment interest and under Virginia
law, prejudgment interest is a question for the jury. (Id. at 15-18.) Even if prejudgment interest is
appropriate under Virginia law, Massey argues the date of accrual is August 23, 2010, rather than
January 25, 2008. (Id. at 18-19.)
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On August 15, 2012, Plaintiffs filed a reply in support of their motion for summary judgment.
(Document 183). Plaintiffs submitted a reduced replacement coal tonnage amount of 364,234 tons.
(Document 183 at 3.) Plaintiffs contend no dispute exists that the contract price was $54 per ton and
the average replacement price was $91.96 per ton, which entitles plaintiffs to the difference of
$13,825,059.09 plus prejudgment interest. (Id.) First, Plaintiffs argue no genuine issue of material
fact exists with respect to privity because DEIS is a party to the contract and Plaintiffs’ motion for
summary judgment does not rely on the Celanese arbitration award for damages but rather an amount
equal to the positive difference between the contract price for the deficiency from the replacement
price. (Id. at 3.) Second, Plaintiffs argue no genuine issue of fact exists because DEIS’ “cover”
purchases were commercially reasonable as a matter of law. (Id. at 6-10.) Third, Plaintiffs argue no
genuine issue of material fact exists with respect to the total amount of coal tonnage that Massey is
responsible for under the 2005 Agreement. (Id. at 10-11.) Finally, Plaintiffs argue DEIS is “entitled,
as a matter of law, to receive prejudgment interest on its damages award of $13,825,059.09.” (Id. at
11-15.)
Plaintiffs also filed a response to Massey’s cross motion for summary judgment. Plaintiffs
argue Massey’s arguments are not against damages, but against liability under the 2005 Agreement.
Plaintiffs argue Massey “consciously chose not to litigate its ‘conditions precedent’ arguments during
the dispositive motions phase on liability.” (Document 184 at 1.) With respect to notice of default,
Plaintiffs assert Defendant’s argument, in this regard, is barred because Massey’s refusal to perform
its obligations under the contracted excused DEIS from any remaining obligations under the 2005
Agreement. Consequently, Plaintiffs contend that Massey’s repudiation of its obligations relieves
DEIS of its obligation to give notice of a breach and an opportunity to cure. (Id. at 2.) With respect to
Massey’s arbitration argument, Plaintiffs respond that Massey waived its right to enforce the
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arbitration provision of the 2005 agreement because it “substantially utilize[ed] the litigation
machinery.” (Id. at 3) (quoting Maxum Foundations, Inc. v. Salus Corp., 779 F.2d 974, 981 (4th Cir.
1985)).
Plaintiffs also respond that Paragraph 16(a), which the parties agree controls the potential
damages, does not factor the terms ‘burn rate’ or ‘coal burned’ into the damages computations.
(Document 184 at 3-6.) Plaintiffs further contend Massey previously demanded that Paragraph
16(a) be enforced as the sole source of Plaintiffs’ damages. (Id. at 4.)
In reply, Massey argues it did not waive the notice of default or the binding dispute resolution
procedures by litigating this case. Specifically, Massey argues that it could not have waived the
conditions precedent because Plaintiffs did not identify the source of its damages until after the close
of discovery. Massey contends that Plaintiffs did not identify the 2005 Agreement as part of their
breach of contract claim until April 9, 2012, when the Plaintiffs’ advanced the extension of the 2005
Agreement as one of three contract theories. (Document 185 at 6.) Massey argues that the 2005
Agreement was not actually the controlling law of the case until the Court granted Plaintiffs’ motion
for summary judgment on July 18, 2012. (Id.) Thereafter, Massey argues Plaintiffs finally agreed to
dismiss their promissory estoppel and misrepresentation claims pursuant to the terms of the 2005
Agreement. (Id.)
Massey also argues the “first breach doctrine” does not apply to relieve the non-breaching
party from compliance with the contractual provisions that expressly apply in the event of a breach.
(Id. at 7) Massey further argues it has not waived its right to arbitration under the agreement because
it could not have raised the notice and arbitration provisions of the contract, until the Court
determined the 2005 Agreement was extended through 2008 on July 18, 2012. Massey contends a
court cannot enforce an arbitration provision until after first deciding that a contract exists and that it
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could only raise the notice and arbitration provisions after David Beck’s August 7, 2012 corporate
representative deposition.
Also, in reply, Massey argues it is entitled to summary judgment on Plaintiffs’ damages
because Plaintiffs cannot prove their damages with a reasonable degree of certainty because the
Plaintiffs passed along their damages to Celanese based on the amount of coal burned by Celanese.
(Document 185 at 12.) Moreover, Massey claims the replacement price was to be based on each
month’s delivery schedule, which Plaintiffs cannot prove with a reasonable degree of certainty.
Massey asserts that no Plaintiff has Article III standing to sue under the 2005 Agreement
because DEIS is the only party to the 2005 Agreement and has no damages, while the other Plaintiffs
have damages from the Celanese Arbitration, but are not parties to the 2005 Agreement. (Id. at 13.)
Finally, Massey contends the only potential damages are consequential damages which are not
recoverable under the 2005 Agreement. (Id.) Because DEIS received payment in full for the
replacement coal, Massey contends DEIS suffered no actual injury and, therefore, lacks Article III
standing. (Id.)
II.
The well established standard for consideration of a motion for summary judgment is that
summary judgment “should be rendered if the pleadings, the discovery and disclosure materials on
file, and any affidavits show that there is no genuine issue as to any material fact and that the movant
is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c)(2); see also Hunt v. Cromartie, 526
U.S. 541, 549 (1999); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty Lobby,
Inc., 477 U .S. 242, 247 (1986). A “material fact” is a fact that might affect the outcome of a party's
case. See Anderson, 477 U.S. at 248; JKC Holding Co. LLC v. Wash. Sports Ventures, Inc., 264 F.3d
459, 465 (4th Cir. 2001).
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A “genuine” issue concerning a “material” fact arises when the evidence is sufficient to allow
a reasonable jury to return a verdict in the non-moving party's favor. Id. The moving party bears
the burden of showing that there is no genuine issue of material fact, and that it is entitled to judgment
as a matter of law. Celotex Corp., 477 U.S. at 322-23. When determining whether there is an issue
for trial, the Court must view all evidence in the light most favorable to the non-moving party. North
American Precast, Inc. v. General Cas. Co. of Wis., Civil No.02:04-1306, 2008 WL 906334, *3 (4th
Cir. Mar. 31, 2008). The non-moving party must satisfy their burden of proof by offering more than
a mere “scintilla of evidence” in support of their position. Anderson, 477 U.S. at 252. If the
non-moving party fails to make a showing sufficient to establish the existence of an essential element,
“there can be ‘no genuine issue as to any material fact,’ since a complete failure of proof concerning
an essential element of the non-moving party's case necessarily renders all other facts immaterial.”
Celotex, 477 U.S. at 322-23. If factual issues exist that can only be resolved by a trier of fact because
they may reasonably be resolved in favor of either party, summary judgment is inappropriate.
Anderson, 477 U.S. at 250.
III.
A. Plaintiffs’ Motion for Summary Judgment
With the exception of the determination of whether prejudgment interest could potentially
apply, the parties agree that Virginia law applies to the question of damages pursuant to the choice of
law provision of the 2005 Agreement. (2005 Agreement ¶ 31.) Under Virginia Law, “[p]roof of
absolute certainty as to the amount of loss or damage is not essential.” However, a plaintiff must
prove “with reasonable certainty the amount of damages and the cause from which they resulted.”
Medcom, Inc. v. C. Arthur Weaver Co., Inc., 232 Va. 80, 87 (1986) (internal quotation marks and
citations omitted). Ultimately at trial, a plaintiff has the “burden of proving with reasonable
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certainty the amount of damages and the cause from which they resulted; speculation and conjecture
cannot form the basis of the recovery.” Saks Fifth Ave., Inc. v. James, Ltd., 272 Va. 177, 188 (2006)
(internal quotation marks and citations omitted). A plaintiff must also “prove the amount of those
damages by using a proper method and factual foundation for calculating damages.” Id. at 189.
After review of the Plaintiffs’ motion, the Court finds that genuine issues of material fact exist
as to Plaintiffs’ damages. In fact, several such issues of fact remain. First, the Court finds the
amount of tonnage attributable to Massey’s breach remains in dispute.
Plaintiffs’ tonnage
calculation is based on the amount of coal delivered [364,234 tons] to the Celanese plant between
February and December 2008. However, there is a dispute as to whether the tonnage amount is to be
based on the amount of coal delivered or the amount of coal burned during the relevant period.
Although the 2005 Agreement is silent, the conduct of the parties with respect to this issue is in
dispute. See Pls.’ Rule 30(b)(6) Dep. 33:16-35:20 (Document 179 Ex. B); Sears Decl. ¶ 22 (Document
179 Ex. A). If the ultimate amount is determined by the coal burned rather than delivered, then the
amount of tons attributable to damages could potentially be closer to 300,000 tons. Second, given
the numerous cover purchases made by DEIS during 2008, the Court finds genuine issue of material
fact exist as to whether the purchases were made in a commercially reasonable manner. Third, as
this Court previously held, there are genuine issues of material fact with the respect to Plaintiffs’
privity.
The Court has further considered the minimalist approach Plaintiffs take in the calculation of
their damages. At trial, Plaintiffs will be unable to simply put on evidence of the contract price and
the cost of the cover coal. Rather, Plaintiffs will need to prove actual loss and, further, that the loss
was a result of Massey’s breach of the agreement. The Court cannot simply calculate the difference
between the contract price and replacement price multiplied by the amount of tons subject to the
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breached contract. The Court finds genuine issues of fact as to whether any Plaintiff suffered any
cover damages as a result of Massey’s breach. Accordingly, the Plaintiffs’ motion for summary
judgment on damages is denied. In making the finding that genuine issues of material fact remain
with respect to Plaintiffs’ damages, the Court finds it unnecessary, at this point, to address whether
prejudgment interest should be awarded in the event Plaintiffs prove actual damages.
B. Defendant’s Cross Motion for Summary Judgment
Massey argues it is entitled to summary judgment because Plaintiffs failed to satisfy the notice
of default and arbitration provision under the 2005 Agreement, which it contends contains conditions
precedent to Plaintiffs’ ability to recover damages. Massey also argues Plaintiffs used the wrong
measure of damages under the 2005 Agreement and, thus, cannot prove their damages to a reasonable
certainty. To the extent Massey moves for summary judgment on Plaintiffs’ failure to properly
calculate damages, the Court finds that the same genuine issues of material fact which preclude
summary judgment for Plaintiffs, likewise, preclude summary judgment for Massey on such grounds.
Therefore, the Court now considers Massey’s conditions precedent argument.
Plaintiffs argue that Massey has waived both the notice of default and arbitration provisions
of the 2005 Agreement. In reply, Massey argues it could not have waived the conditions precedent
because the 2005 Agreement was not actually the controlling law of the case until the Court granted
Plaintiffs’ motion for summary judgment on July 18, 2012. (Id.) Further, Massey contends it could
not have possibly made the conditions precedent arguments until after it deposed Mr. Beck on August
7, 2012. However, this is not the case.
On July 26, 2012, Massey filed its Motion for Leave to File Motion for Summary Judgment
on Plaintiffs’ Promissory Estoppel and Misrepresentation Claims (Document 158), wherein Massey
argued Plaintiffs’ promissory estoppel and misrepresentation claims were “expressly precluded”
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because Paragraph 26 of the 2005 Agreement prohibits suits in equity or tort, and bars recovery for
consequential, incidental, or punitive damages. (Document 158 ¶ 4.) The Court granted Massey
leave and entered summary judgment in favor of Massey on Plaintiffs’ promissory estoppel and
misrepresentation claims. Clearly, on July 26, 2012, at the very latest, Massey had the opportunity to
advance its arguments that Plaintiffs’ breach of contract claim was barred by Plaintiffs’ failure to
comply with the notice of default and arbitration provisions in the 2005 Agreement. On that date, it
moved for summary judgment on the promissory estoppel and misrepresentation claims based on
separate provisions in the 2005 Agreement. Massey sought to enforce certain provisions of the 2005
Agreement, but waited to raise the notice of default and arbitration provision until after it received a
favorable ruling on the promissory estoppel and misrepresentation claims.
Aside from failing to raise its conditions precedent argument when it sought to enforce other
provisions of the 2005 Agreement, Massey could have argued both the arbitration and notice of
default grounds in response to Plaintiffs’ motion for summary judgment. Although Plaintiffs argued
the existence of a contract by extension of the 2005 Agreement, in its motion filed April 9, 2012,
Massey never raised its conditions precedent argument.
Having utilized and submitted to the
litigation process without advancing the argument, the Court finds that Massey’s cross motion for
summary judgment should be denied.
CONCLUSION
Thus, based on the findings herein, the Court does hereby ORDER that Plaintiffs’ Motion for
Summary Judgment on Damages (Document 161-1) be DENIED and Defendant’s Cross Motion for
Summary Judgment on Plaintiffs’ Damages (Document 179) be DENIED.
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The Court DIRECTS the Clerk to send a copy of this Order to counsel of record and any
unrepresented party.
ENTER:
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October 9, 2012
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