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Sumner v. Armstrong Coal Company, Inc.

United States District Court, W.D. Kentucky, Louisville

August 15, 2014

DOUGLAS P. SUMNER, Plaintiff,
v.
ARMSTRONG COAL COMPANY, INC., Defendant.

MEMORANDUM OPINION

JOHN G. HEYBURN, II, District Judge.

This case involves a contract dispute and is on remand from the Sixth Circuit Court of Appeals. One issue remains: whether Plaintiff Douglas P. Sumner ("Sumner") is entitled to commissions under coal supply contract J10007 pursuant to a Consulting Agreement he entered with Defendant Armstrong Coal Company, Inc. ("Armstrong"). Sumner claims that Armstrong shifted some of the tonnage of coal from supply contract J07032, a contract under which he is owed commissions pursuant to the Consulting Agreement, to supply contract J10007, a contract under which he is not. This Court previously granted summary judgment in favor of Sumner regarding liability for commissions on two other coal supply contracts related to the Consulting Agreement, J10009 and J07032, but dismissed Sumner's claim for commissions on J10007, which had the effect of granting sua sponte summary judgment to Armstrong for that contract.

The parties cross appealed the grants of summary judgment regarding J10009 and J10007. The Sixth Circuit affirmed Armstrong's liability to Sumner for commissions on all coal sold under J07032, as amended, and J10009. The Sixth Circuit reversed and remanded the sua sponte grant of summary judgment in Armstrong's favor to afford Sumner the opportunity to conduct discovery and develop facts regarding his coal shifting theory.

I.

The circumstances surrounding this case have been briefed extensively. This Court adopts the Sixth Circuit's version[1] of the following relevant background:

Armstrong was formed in 2006 for the purpose of acquiring and developing coal reserves in Western Kentucky to sell the coal to end-users, such as utility companies. Shortly after Armstrong's inception, it entered into a letter agreement with Sumner to provide consulting services and negotiate contracts on behalf of Armstrong with Louisville Gas and Electric Corporation (LG & E), a potential end-user. The agreement promised to pay Sumner $0.35 cents per ton of coal sold to LG & E for any contract entered into prior to December 31, 2007, and gave Sumner "the exclusive right to negotiate a contract with LG & E."
On April 7, 2007, Armstrong and Sumner executed a consulting agreement.... The consulting agreement gave Sumner exclusive rights to negotiate with LG & E and an additional potential end-user, Big Rivers Electric Corporation, but provided that Armstrong is responsible for the final acceptance of any contracts Sumner negotiates. It also states that Sumner will be entitled to commissions on coal shipped under long-term contracts executed during the term of the consulting agreement, even if the shipments extend beyond the end of the term. The parties later amended the consulting agreement to clarify that Sumner is not entitled to compensation for contracts, purchase orders, or "spot market" sales that last for a term of less than one year.
In December 2007, Sumner assisted Armstrong in negotiating a contract with LG & E in which Armstrong agreed to provide LG & E with 27.1 million tons of coal through 2015. This contract-known as Contract No. J07032-became effective January 1, 2008.... On December 22, 2009, Armstrong and LG & E [ ] reduced the total volume of coal to be supplied under J07032. On the same day, Armstrong entered into two new contracts with LG & E-Contract Nos. J10007 and J10009. J10007 provided for the sale of 600, 000 tons of coal from January 1, 2010 through December 31, 2010.... It is undisputed that Sumner did not participate in the contract negotiations for J10007 or J10009 or the amendments to J07032. The consulting agreement between Armstrong and Sumner expired on midnight on December 31, 2009.

Following remand, Sumner has had the opportunity to develop his coal shifting theory and the parties have provided the following additional relevant information. On September 9, 2009, Armstrong wrote a letter to LG&E[2] and invoked the "Environmental Law Force Majeure" clause in supply contract J07032. This clause permitted Armstrong to propose corrective action or terminate the supply agreement if it decided that "the adoption or reinterpretation of laws, regulations, policies, or restrictions, or change in the interpretation or enforcement thereof" rendered it impossible or uneconomical to produce coal under the terms of the agreement.[3] Armstrong claims that below market prices in the contract, delay in obtaining necessary permits, and a change in regulations and policies as contemplated in the force majeure clause made performance impossible or uneconomical. As corrective action, Armstrong sought an increased price per ton and other concessions with regard to coal to be shipped under J07032.

Armstrong and LG&E entered into negotiations to amend their existing coal supply agreement. Armstrong provided LG&E with documentation of its increased costs as a result of regulatory changes and its inability to obtain key permits. These increased costs included over $60 million in stranded investments.[4] In an internal document, LG&E acknowledged that Armstrong was providing coal at a below market rate and concluded that, under the force majeure clause, Armstrong could "walk away from their contractual obligation to supply coal under the agreement."[5]

On October 19, 2009, after three weeks of negotiations, LG&E sent Armstrong a proposal to resolve the dispute.[6] The proposal's subject line reads: "Revised Proposal re Resolution of Section 10.2 Issue and Restructuring of Coal Supply Agreement dated as of January 1, 2008 (No. J07032; as amended, the Contract')." The letter states the following:

As discussed in our phone conversation today, below is our understanding of the basis for a resolution of the issues among the parties. LG&E and KU withdraw their proposal set forth in my last letter to you (dated October 12, 2009, but sent on October 15, 2009) and, in its place, propose[] the following (all of which constitutes the proposal).[7]

It suggests amending J07032 by reducing the total amount of coal to be purchased and extending delivery over a longer period of time. Armstrong and LG&E/KU eventually adopted these terms as Amendment No. 2 to J07032 in December 2009. The letter also proposed another contract to extend over the time-period of one year, which terms became J10009, executed in December 2009. Finally, the letter proposed a new short-term contract by stating: "LG&E/KU would enter into a new spot agreement with Armstrong based on the following general terms." The terms of the proposed spot agreement required Armstrong to provide 600, 000 tons of coal at $41 per ton from January 1, 2010 through December 31, 2010. These terms became J10007, also executed in December 2009. The price per ton under J10007 is over $10 greater than that under the amended J07032.

Sumner sees the entire October 19, 2009 letter as the proposal for restructuring J07032, and thus views J10007 as an amendment of J07032. As such, Sumner argues that Armstrong has breached the Consulting Agreement by failing to pay him commissions under J10007. Sumner also claims that Armstrong breached the Consulting Agreement by excluding him from the restructuring negotiations. Finally, Sumner claims Armstrong breached the Consulting Agreement's implied covenant of good faith and fair dealing by restructuring J07032 to avoid paying Sumner a commission on the tonnage contemplated in J07032 prior to the disputed restructuring. Armstrong counters that J07032 bears no relationship to J10007 and that LG&E unilaterally proposed the spot contract following negotiations for restructuring J07032.

II.

A party is entitled to summary judgment where the movant demonstrates that "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A court will view the evidence and draw all reasonable inferences in favor of the non-moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). The court must decide if "the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., ...


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