648 F.3d 506 (7th Cir. 2011), 10-2811, Dynegy Marketing and Trade v. Multiut Corp.

Docket Nº:10-2811.
Citation:648 F.3d 506
Opinion Judge:TINDER, Circuit Judge.
Party Name:DYNEGY MARKETING AND TRADE, a Colorado Partnership, Plaintiff-Appellee, v. MULTIUT CORPORATION, an Illinois Corporation, and Nachshon Draiman, an Illinois Resident, Defendants-Appellants.
Attorney:Barry S. Hyman (argued), Attorney, Schiff Hardin LLP, Chicago, IL, for Plaintiff-Appellee. Joseph E. Tighe (argued), Attorney, Latimer Levay Jurasek, Chicago, IL, for Defendants-Appellants.
Judge Panel:Before KANNE and TINDER, Circuit Judges, and HERNDON, District Judge. [*]
Case Date:August 04, 2011
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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648 F.3d 506 (7th Cir. 2011)

DYNEGY MARKETING AND TRADE, a Colorado Partnership, Plaintiff-Appellee,


MULTIUT CORPORATION, an Illinois Corporation, and Nachshon Draiman, an Illinois Resident, Defendants-Appellants.

No. 10-2811.

United States Court of Appeals, Seventh Circuit.

August 4, 2011

Argued Jan. 12, 2011.

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[Copyrighted Material Omitted]

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Barry S. Hyman (argued), Attorney, Schiff Hardin LLP, Chicago, IL, for Plaintiff-Appellee.

Joseph E. Tighe (argued), Attorney, Latimer Levay Jurasek, Chicago, IL, for Defendants-Appellants.

Before KANNE and TINDER, Circuit Judges, and HERNDON, District Judge. [*]

TINDER, Circuit Judge.

The relationship between Dynegy Marketing and Trade (" Dynegy" ), a natural gas supplier, and Multiut Corporation, a natural gas distributor headed by Nachshon Draiman, has become as volatile as the commodity in which they once dealt. Dynegy and Multiut adhered to their written contract for a time, but their relationship unraveled in the face of a failed acquisition, several million dollars' worth of unpaid invoices, and frequent disputes over pricing, which were later inflamed by allegations that Dynegy and other natural gas suppliers were manipulating the indices on which natural gas price quotes are based. When Multiut's outstanding bills remained unpaid notwithstanding Draiman's personal guaranty, Dynegy cut off Multiut's gas supply and brought suit, alleging breach of contract and guaranty as well as fraudulent transfer claims. Multiut and Draiman fired back with six counterclaims, which included a number of contract-related claims and a Robinson-Patman antitrust claim. After contentious discovery, Dynegy moved for summary judgment on its contract and guaranty

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claims and all of the defendants' counterclaims. Multiut and Draiman tried to oppose summary judgment by submitting a declaration from Draiman, but the district court excluded the declaration as a sanction for Multiut's discovery violations. The district court granted Dynegy's summary judgment motion and ultimately issued a Rule 54(b) judgment on the contract and guaranty claims and the counterclaims. Multiut and Draiman filed two motions to reconsider, but the district court denied both motions and rejected their belated submission of affidavits relating to the alleged price index manipulation. Multiut and Draiman challenge nine of the district court's rulings. We affirm in full.

I. Background

Draiman solely owns and controls Multiut, an Illinois corporation that acts as a middleman between utility providers and end-users. Multiut obtains wholesale quantities of natural gas from national suppliers and allocates the gas to its smaller local customers. Dynegy, a Colorado partnership that markets energy products, is the main supplier from which Multiut obtained gas. Multiut first established a contractual relationship with Dynegy's predecessor-in-interest, Natural Gas Clearinghouse, in 1988. In 1994, Multiut and Dynegy entered into a Natural Gas Sales Agreement (" the agreement" ). (Technically, Multiut entered into the agreement with Natural Gas Clearinghouse, but the parties agree that Dynegy, as Natural Gas Clearinghouse's successor, is bound by the agreement.) Pursuant to the agreement, Multiut would contact Dynegy periodically and make " nominations" of natural gas, measured in units called " therms." Dynegy would quote Multiut a price, based on an applicable natural gas index, and if Multiut accepted the price Dynegy would pipe the gas to an agreed-upon delivery point and send monthly invoices to Multiut, which was obligated to pay for the gas delivered. Its obligation was backstopped both by an interest provision in the agreement and a separate personal guaranty Draiman executed in 1995. The parties were supposed to formally memorialize their transactions by completing forms called " Exhibit Bs," but in practice the invoices were typically the only written records.

The parties' arrangement worked well enough that Dynegy expressed an interest in acquiring Multiut in 1997. The parties signed a confidentiality agreement and conducted due diligence, but Dynegy ultimately bowed out of the deal. It instead created a joint venture, Nicor Energy, with one of Multiut's competitors, Nicor, Inc. Dynegy began providing natural gas to Nicor Energy in 1998, which Multiut and Draiman pinpoint as the beginning of the demise of the Dynegy-Multiut relationship. Multiut claims that Dynegy gave Nicor Energy sweetheart pricing, in violation not only of the antitrust laws but also of an alleged oral contract promising Multiut " most-favored nations" or " best" pricing.

Notwithstanding its apparent dissatisfaction with Dynegy and Nicor Energy, Multiut continued buying gas almost exclusively from Dynegy and making " progress payments" toward its balance owed. Multiut hit a few financial bumps, however, and by December 2000 owed Dynegy at least $1,620,178 in payments and interest. Multiut's bookkeepers met with representatives from Dynegy in March 2001 and agreed that Dynegy's calculation of the arrearage was accurate despite Dynegy's failure to include interest on Multiut's invoices during most of 1999 and 2000. From roughly that point forward, Dynegy refused to offer Multiut monthly price quotes; to mitigate its risk, it would agree

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only to provide Multiut gas on a day-to-day basis. Multiut preferred longer-term, fixed-price deals, however, so as to better hedge its own risk against fluctuating energy prices and manage customers with whom it had entered into fixed-price contracts. It made repeated efforts to persuade Dynegy to offer it longer-term price guarantees. In June 2001, Draiman sent Dynegy an unsolicited fax stating, " This is to confirm the Multiut order for 12 months. A total of 8 million therms (800,000 MMBTU's) @ ----." Dynegy did not send a return fax, but Draiman testified that he spoke with Dynegy employee Mark Ludwig and gleaned that Multiut " would have to wait a little bit of time to bring some of the balance down" before fixed pricing would be available.

Draiman again sought fixed pricing at a September 2001 meeting with Dynegy employees Ludwig and Pete Pavluk. According to Draiman, Pavluk and Ludwig told him they would " work on" locking-in a fixed price, or that they " would get it done." They also asked him to develop a payment schedule to address Multiut's growing arrearage. By letter dated September 17, 2001, Draiman proposed a tentative payment schedule and added for Dynegy's review " a report of customers on Fixed Cost contracts." Draiman noted that these customers were committed to paying Multiut an average of 47.5 cents per therm and expressed interest in acquiring gas from Dynegy at a fixed price of 30 cents per therm to " insure [Multiut] an additional annual profit of 2,000,000." Dynegy responded by letter dated October 4, 2001, explaining that its relationship with Multiut had become " one of concern" and requested a " detailed formal payment plan by no later than Wednesday, October 10, 2001." It did not mention Draiman's fixed-price proposal. Draiman testified that he nonetheless relied on Ludwig and Pavluk's assurances and did not seek out alternative sources of gas for Multiut.

Though it proposed a payment plan (on October 12), Multiut continued to fall further behind in its payments as wholesale natural gas prices climbed above the prices it was receiving from its own fixed-price customers. Dynegy kept the gas flowing (and arrearage growing) for another year but shut off the spigot in December 2002 after filing suit against Multiut and guarantor Draiman.

Multiut and Draiman responded by denying Dynegy's allegations and raising affirmative defenses to its breach of contract and breach of guaranty claims. They also filed a bevy of counterclaims against Dynegy. Those relevant here alleged that Dynegy breached the 1997 confidentiality agreement by " inevitably disclosing" to Nicor Energy valuable information it had obtained from Multiut; breached an oral agreement to supply gas at fixed prices; breached an implied agreement not to charge interest; breached an oral agreement to offer " most favored nations" pricing; and violated the Robinson-Patman Act, 15 U.S.C. § 13(a), by offering lower gas prices to Multiut's competitors.

In March 2003, the Federal Energy Regulatory Commission (FERC) issued a lengthy report summarizing its year-long investigation of energy markets in the western United States. See Staff of the Federal Energy Regulatory Commission, Final Report on Price Manipulation in Western Markets (2003), available at http:// www. ferc. gov/ industries/ electric/ indus- act/ wec. asp (" FERC report" ). According to the FERC report, which was commissioned to " determine whether and, if so, the extent to which California and Western energy markets were manipulated during 2000 and 2001," id. at ES-1, " [d]ysfunctions in the natural gas market appear to stem, at least in part, from

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efforts to manipulate price indices compiled by trade publications," id. Dynegy was one of many energy firms implicated in the alleged price index manipulation. The FERC report quoted several Dynegy employees, who stated they felt pressured to report inflated volumes or prices to the industry-produced indices, see id. at III-5, which were the bases for the prices Dynegy and other suppliers charged their customers, including Multiut. The FERC report highlighted Dynegy's alleged manipulations in Oregon and San Francisco, but did not mention Dynegy in connection with " the Great Lakes" or Chicago. See id. at III-54.

After the FERC report became public, Multiut sought in discovery information and documents regarding Dynegy's calculation and...

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