Vulcan Materials Company v. Atofina Chemicals, Inc.

355 F.Supp. 2d 1214 (2005)

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Nature of the Case

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Facts

P operates chemical plants producing chlorine, caustic soda, hydrochloric acid, chloroform, and other chemicals. D operated a chemical plant in Wichita, Kansas. D's Wichita plant was the only place D made R-22. D bought chloroform it needed to make R-22 from P. D's Wichita plant was physically adjacent to P's Wichita plant, and was connected to Vulcan's plant by a system of pipelines. R-22 is a chemical refrigerant. D had historically lost money producing R-22. It lost approximately two million dollars each year between 1990 and 1997. It gained a profit in 1998 and 1999, but lost money again in 2000, and forecast additional losses in 2001. D's total income from the Wichita plant in 1999 was approximately $4.7 million. P knew D had accepted the risk of plant closure because it knew if D decided to close its plant, P would have 12-months' notice. D understood that if R-22 production stopped in Wichita, P would have to find new customers for the chemical products it manufactured in Wichita. P heard many times that D would shut down its plant unless P lowered prices. On September 1, 1999, the parties entered into a new Sales Agreement. The initial term was three years. D was obligated to purchase its 'entire requirements of chloroform' for the Wichita plant from P. P was not required to deliver more than 5,000 tons of chloroform to D 'in any calendar month during the Term.' D was required to give an estimate of its monthly chloroform requirements for the next calendar year on or before November 1 of each year, and to provide updated forecasts by the eighth working day of the month preceding each upcoming month and quarter. The base price was $480 per ton ($0.24 per pound) for chloroform. P could change the price for its chloroform, upon 30-days written notice, subject to certain limitations. The 1999 Sales Agreement did not specify any minimum quantity of chloroform that D was obligated to buy in any one year. It also did not limit D to selling R-22 made only in Wichita; it could sell R-22 made at other plants. D had been trying to get a better chloroform price from P for 'years,' and D had only two options to ensure greater profitability: either get P to lower its prices or shut down the plant and seek an alternative supply of chloroform. Those in corporate for D believed that the Wichita plant was a problem because of the price of chloroform, the small size of the plant, and transportation costs from Wichita. D made a number of attempts to lower P's pricing. D and Atofina France asked P to lower its chloroform price or enter into a product swapping arrangement. Their alternative was to shut down and to supply the US packaged market from Europe and China, without any increased cost (extra logistics being compensated by cheaper chloroform cost). P was told that D's objective was chloroform at $0.20/lb. beginning January 2001. P gave D a chloroform price of $0.23/lb. P's prior chloroform price to D had been $0.26/lb. On May 22, 2001, a letter was drafted to terminate the 1999 Agreement. The negotiations continued through the summer and fall of 2001. On October 19, 2001, D gave P its forecast of its chloroform requirements for 2002 pursuant to the 1999 Sales Agreement. Corporate D decided in December, 2001 not to give P notice terminating the 1999 Agreement, until replacement supply contracts with Honeywell and DuPont were signed. After June 27, 2002, when D stopped making R-22 at its Wichita plant and stopped buying chloroform from P, D still required quantities of chloroform and R-22 to meet its obligations to its customers. The chloroform that Honeywell would use to manufacture D's replacement R-22 would be supplied by Dow at a net price of $457/metric ton, compared to P's then current price of $507/metric ton. The uncontroverted evidence establishes that Ds had formed an intention, during the course of 2001, to eliminate further purchases of chloroform from P and shut down the Wichita plant. When P gave a price concession, P did not know D had all but signed deals with Honeywell and Dow. P had provided voluntary price relief to try and extend the operation of that plant and could have gone back to a higher price level during that 12-month period had it known the true facts. P sued D for breach of contract. D asserts it bears no liability because the Wichita shutdown was part of a long-term business reorganization plan. It claims to have exercised reasonable business judgment in closing an inefficient and unprofitable facility. P seeks by summary judgment a finding that D breached the 1999 Sales Agreement to purchase the chloroform requirements for its Wichita plant