Drummond Coal Sales, Inc. v. Norfolk Southern Railway Company

3 F.4th 605 (4th Cir. 2021)

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Nature of the Case

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Facts

P entered into a contract with Norfolk Southern for guaranteed shipping services at fixed rates. This allowed P to deal with its customers to both supply coal and encompass in that price the cost of shipping the coal. Article 13 of the P-D Agreement set out the rates D would charge P to deliver the coal from the port to the utility. In exchange for D's promised rates, P promised to ship a certain amount of coal each year under the Agreement. If P did not meet its annual quota, it agreed to pay D shortfall fees. The Agreement did not prohibit D from entering into or shipping coal under other third-party utility contracts. The Agreement expressly allowed D to do so. Behind the scenes, D had contracts with certain utilities that confidentially precluded those utilities from purchasing and shipping coal via the Agreement without incurring liquidated damages. After P and D entered into the Agreement, the coal industry experienced significant change. Federal regulation forced many utilities to close or substantially reduce or eliminate their use of coal. In contrast, the absence of such regulations in other countries made those markets more attractive for coal suppliers. From 2010 to 2014, P did not ship any coal under the Agreement. D claims P made a business choice and elected to ship coal to customers outside the United States where the market was more lucrative. P claims that D's confidential contracts with the utilities sabotaged its ability to use the one-stop-shop rates bargained for in the Agreement. P paid D the required shortfall fees from 2010 to 2014. Then again, in years 2015 and 2016, Drummond did not ship any coal under the Agreement. P did not pay the required shortfall fees for those two years. At trial, the two issues were declaratory relief excusing P's performance due to D's breach of the Agreement and rescission based on D's breach. P claimed an express material breach, prevention, and breach of the implied duty of good faith and fair dealing. The jury gave the special verdict to P. The jury determined that the first material breach occurred on July 1, 2010. The court denied P a full recission of the agreement, excused P from paying the fees due in 2015-2016, and denied P the ability to recoup shortfall fees already paid. Both parties appealed.