Drummond Coal Sales, Inc. v. Norfolk S. Ry. Co.

• Decision Date: 22 July 2019
• Docket Number: Civil Action No. 7:16-cv-489
• Parties: DRUMMOND COAL SALES, INC., Plaintiff, v. NORFOLK SOUTHERN RAILWAY COMPANY, Defendant.
• Court: U.S. District Court — Western District of Virginia

DRUMMOND COAL SALES, INC., Plaintiff, v. NORFOLK SOUTHERN RAILWAY COMPANY, Defendant.

Civil Action No. 7:16-cv-489

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF VIRGINIA ROANOKE DIVISION

July 22, 2019

By: Michael F. Urbanski Chief United States District Judge

MEMORANDUM OPINION

This action arises out of a protracted contract dispute between plaintiff Drummond Coal Sales, Inc. ("Drummond") and defendant Norfolk Southern Railway Company ("Norfolk Southern") related to a 2006 contract ("C-9337") for rail transportation services from a terminal in Charleston, South Carolina to twenty-three (23) contractually specified coal-burning power plants in the southeastern United States. The parties resolved their initial dispute in 2010, agreeing to amend certain provisions of the contract and extend its term. Drummond now seeks a declaration that its performance under C-9337, as amended, should be excused.

The principal issue remaining in this case is the interplay between Drummond's contract with Norfolk Southern, i.e., C-9337 (as amended), and Norfolk Southern's confidential third-party contracts ("Destination Contracts") with various utility customers ("Utilities") that own and operate a specified list of power plants ("Destinations"). The terms of C-9337 required Drummond to ship a minimum volume of coal each year of the contract term and pay Norfolk Southern a shortfall fee if it failed to meet that guaranteed volume. In the present action, Drummond contends that Norfolk Southern's separate Destination Contracts precluded the Utilities from accepting coal on C-9337 without incurring liquidated damages, effectively eviscerating the value of C-9337 and depriving Drummond of the benefit of the bargain it struck with Norfolk Southern.

Currently before the court are various motions in limine filed by the parties. These motions have been fully briefed and are ripe for decision. Upon consideration of the evidence and arguments presented by the parties, and for the reasons stated in open court and below, the court rules as follows:

1. Drummond Coal Sales, Inc.'s Motion in Limine Number One Regarding the Interpretation and Operation of the Destination Contracts, ECF No. 210

In its first motion in limine, Drummond requests the court either inform the jury of its various legal determinations (or, as variously described by Norfolk Southern, the court's "colloquial observations," "explanatory comments," and/or "generalizations") with respect to the interpretation and operation of the Destination Contracts¹, or permit Drummond to do so. Drummond contends that pertinent provisions of the Destination Contracts are unambiguous, and that because it is well settled that the interpretation of unambiguous contracts is a question of law, "[a]llowing the jury to draw their own conclusions regarding the interpretation or operation of the Destination Contracts would be error . . . ." ECF No. 210, at 4. Drummond cites multiple instances where Norfolk Southern conceded that the Destination Contracts are in fact unambiguous. See, e.g., ECF No. 139, at 3 ("The Contractand Destination Contracts speak for themselves, and their proper interpretation and application are matters for this Court."); ECF No. 186, at 16 ("The parties further agree that the terms and provisions of these contracts speak for themselves and are not ambiguous. In other words, the parties do not disagree on what these separate contracts say in terms of guaranteed minimums, liquidated damages, origins, rates or refunds relating to specific origins . . ."). In its opposition to Drummond's motion, Norfolk Southern reaffirmed that it has consistently maintained that the Destination Contracts are unambiguous and that the plain language of those contracts "speaks for itself." ECF No. 233, at 7.

Notwithstanding the parties' apparent agreement that relevant provisions of the Destination Contracts are "unambiguous," they diverge as to what the jury should be told and by whom. Drummond contends that although the jury may be asked to determine whether Norfolk Southern's acts and omissions constitute a material breach of C-9337, it should not be asked to interpret the Destination Contracts. Drummond proposes that rather than requiring it to call witnesses to testify about and relitigate the meaning and/or operation of the Destination Contracts, the jury should be instructed by the court or informed by counsel regarding the same. Drummond expressed a willingness to work with counsel for Norfolk Southern on a joint stipulation to address this issue.

Norfolk Southern, for its part, asserts that the jury is entitled to hear its witnesses "about the context in which these contracts arose" followed by "attorney argument about what it all means." ECF No. 262, at 11. Norfolk Southern further asserts that Drummond offers no analysis to support the procedural error it invites, i.e., that in a declaratory judgment case between two parties to a specific contract (C-9337), the court should instruct the juryabout interlocutory legal rulings, made with respect to other contracts (Destination Contracts) between other parties (Norfolk Southern and the Utilities). ECF No. 233, at 3.

To be sure, the Fourth Circuit and the Supreme Court of Virginia have consistently held that the interpretation of an unambiguous contract is a question of law. See Frahm v. United States, 492 F.3d 258, 262 (4th Cir. 2007) (citing Scarborough v. Ridgeway, 726 F.2d 132, 135 (4th Cir. 1984); see also City of Chesapeake v. States Self-Insurers Risk Retention Grp., Inc., 271 Va. 574, 578, 628 S.E.2d 539, 541 (2006) (citing Bentley Funding Group, L.L.C. v. SK & R Group, L.L.C., 269 Va. 315, 324, 609 S.E.2d 49, 53 (2005); Babcock & Wilcox Co. v. Areva NP, Inc., 292 Va. 165, 178, 788 S.E.2d 237, 243 (2016) ("The interpretation and construction of a written contract present only questions of law, within the province of the court, and not of the jury or other trier of fact as long as the contract is unambiguous, and the intent of the parties can be determined from the face of the agreement."); Foreign Mission Bd. of S. Baptist Convention v. Wade, 242 Va. 234, 238, 409 S.E.2d 144, 146 (1991) (holding that the trial court improperly submitted the question of the interpretation of the contract to the jury); see also Va. Model Jury Instructions Civil No. 45.190, Commentary ("Ordinarily, the construction of a written contract is a matter for the court alone. If the terms of the contract are clear and unambiguous, the court alone must construe the contract. In such a case, it is improper to submit the contract to the jury for interpretation" (citations omitted)); cf. Donnert v. Feld Entm't, Inc., 612 F. App'x 657, 661 (4th Cir. 2015) (holding that where a party presents a plausible alternative interpretation of a contract provision, that party is entitled to have the meaning of the provision submitted to the jury for resolution).

Neither Drummond nor Norfolk Southern contend that the Destination Contracts at issue are ambiguous. In general terms, these Destination Contracts impose minimum volume commitments which Drummond argues breach Article 13 of C-9337, either expressly or under the covenant of good faith and fair dealing, because Drummond was unable to use the rates it bargained for in C-9337, resulting in the shortfall fees. Thus, the jury is not going to be called upon to interpret these provisions of the Destination Contracts. Instead, their task will be to determine whether the existence of these Destination Contracts constituted a material first breach of Article 13 of C-9337, relieving Drummond from having to pay shortfall fees. Under the circumstances, the court does not believe it to be appropriate or necessary to preliminarily instruct the jury, as Drummond suggests, on the operation of the Destination Contracts. The fact that these Destination Contracts imposed minimum volume requirements is plain.

The question to be resolved, that of the operation and impact of the minimum volume provisions of the Destination Contracts on Drummond's ability to perform under C-9337, is not one of law, but of fact, requiring the marshaling of evidence and argument. This does not call for contract interpretation requiring a preliminary instruction from the court. As such, Drummond's motion to have the court instruct the jury on the operation of the Destination Contracts is DENIED.

2. Drummond Coal Sales, Inc.'s Motion in Limine Number Two Regarding Parol Evidence Relating to the Destination Contracts, ECF No. 211

In its second motion in limine, Drummond moves to preclude Norfolk Southern from offering evidence or advancing arguments that contradict unambiguous language contained in the Destination Contracts. Specifically, Drummond moves to prevent Norfolk Southern fromclaiming, through the deposition testimony of its Rule 30(b)(6) corporate designee, David Lawson, that "as a practical matter," "it would have counted"² shipments under C-9337 toward the minimum volume requirements of the Utilities. Lawson's testimony, distilled to its essence, appears to suggest that had any Utility contacted Norfolk Southern and expressed a desire to ship coal under C-9337, it would have granted that request and counted any such shipment toward the Utility's volume commitment. See ECF No. 234-1, at 10 ("Well, I'm telling you as a matter of practical course if the ton had moved, Southern Company would have said to us, [t]hat's a ton that moved in here. It qualifies. We would have said, yeah, absolutely."); see also ECF No. 158, at 7 (". . . as a practical matter, if any Utility had contacted Norfolk Southern and indicated a desire to purchase Drummond coal under the Contract, Norfolk Southern absolutely would have counted any such shipment toward the minimum volume commitment in the Utility's Destination Contract").

Drummond asserts that the unambiguous language of the Destination Contracts does not allow shipments under C-9337 to count toward the...