Entergy Services, Inc. v. Union Pacific R. Co.
| Decision Date | 28 January 1999 |
| Docket Number | No. 8:98CV00345.,8:98CV00345. |
| Citation | 35 F.Supp.2d 746 |
| Parties | ENTERGY SERVICES, INC. and Entergy Arkansas, Inc., Plaintiffs, v. UNION PACIFIC RAILROAD COMPANY, Defendant. |
| Court | U.S. District Court — District of Nebraska |
Gerald L. Friedrichsen, William J. Riley, Fitzgerald, Schorr Law Firm, Omaha, NE, Deborah E. Lamb, Tom F. Phillips, Frederick R. Tulley, John P. Murrill, Brandon Kelly Black, Taylor, Porter Law Firm, Baton Rouge, LA, Leon Holms, Steven W. Quattlebaum, James E. Hathaway, III, Williams, Anderson Law Firm, Little Rock, AR, C. Michael Loftus, Frank J. Pergolizzi, Andrew B. Kolesar, III, Slover, Loftus Law Firm, Washington, DC, Otis H. Storey, Entergy Services, Inc., Little Rock, AR, for Plaintiffs.
Patrick B. Griffin, Kutak, Rock Law Firm, Omaha, NE, Beverly S. Greer, Union Pacific Law Dept., Omaha, NE, Jay T. Smith, Harris Weinstein, Alessio D. Evangelista, Corinne A. Goldstein, Covington, Burling Law Firm, Washington, DC, Frederick W. Bradley, Liskow, Lewis Law Firm, New Orleans, LA, for Defendant.
This case involves a breach of contract suit by Entergy Services, Inc. ("ESI") and Entergy Arkansas, Inc. ("EAI") (hereinafter collectively referred to as "Entergy") against Union Pacific Railroad ("UP") based on Rail Transportation Agreements whereby UP was to transport coal from the Powder River Basin ("PRB") in Wyoming and Montana to Entergy's coal-fired power plants in Arkansas. Entergy originally brought this suit seeking liquidated damages, actual damages and judicial cancellation of the contract for UP's alleged failure to deliver coal. Also contained in this law suit is an allegation that UP breached its covenant of good faith. However, discovery on the issue of good faith has been postponed until Phase II of this case. At the conclusion of Phase I, Entergy filed a motion for Partial Summary Judgment (Filing No. 76) and UP filed a Motion for Summary Judgment (Filing No. 74). In short, the parties ask the Court to interpret their contract and determine (1) whether UP breached the contract, and (2) whether the liquidated damages provision in the contract provides Entergy's exclusive remedy.
For purposes of these motions, the following facts appear to be undisputed. Entergy operates two coal-fired power plants designed to burn low-sulphur coal. One is located near Redfield, Arkansas, in Jefferson County ("White Bluff Station") and one is located near Newark, Arkansas, in Independence County ("Independence Station"). Prior to Entergy's contract with UP, Entergy (formerly known as Arkansas Power & Light Company ("AP & L")) had its coal delivered to both plants pursuant to a joint-line common carrier tariff, which provided for coal movement via the Burlington Northern Railroad Company ("BN") from the PRB to Kansas City, Missouri, and then via the Missouri Pacific Railroad ("MP") from Kansas City to the Entergy Stations. In 1980, Congress passed the Staggers Rail Act which gave the railroads the ability to enter into rail transportation contracts with shippers, rather than requiring all rail traffic to move pursuant to tariff and regulatory rules. (Gough Affidavit ¶ 5). Entergy began looking for competitive bids for a rail transportation contract to replace its tariff arrangement. (Plaintiff's Counter-Statement of Facts ¶ 4). Besides considering its current transportation via BN and MP, Entergy investigated transporting coal under an arrangement with the Chicago & North Western Transportation Company ("CNW"), Western Railroad Properties ("WRPI") (a wholly-owned subsidiary of CNW), UP, and MP. Under such an arrangement, WRPI would be responsible for transporting the coal over rail lines it owned from the PRB through Shawnee Junction, Wyoming, and then to South Morrill, Nebraska. (See Exhibit 5 to Gough Affidavit). UP would then be responsible for transporting the coal over rail lines it owned from South Morrill, Nebraska, to Kansas City, Missouri. Id. Finally, the last leg of the trip required shipment via MP from Kansas City, Missouri, to both of Entergy's Stations in Arkansas. Id. Entergy also considered a third option of transporting its coal via a proposed coal slurry pipeline that was being developed by Energy Transportation System, Inc. ("ETSI"). (Plaintiff's Counter-Statement of Facts ¶ 5). Entergy received bids under all three of these transportation plans. After the bidding process, Entergy awarded a rail transportation contract to UP/CNW/MP. Negotiations between Entergy and UP/CNW/MP ensued over the next few years to draft acceptable contract terms.
As a result of these negotiations, two separate agreements were entered into in 1983 to govern the transportation of coal to Entergy's plants. Each agreement covered a separate geographic portion of the coal movement. The 1983 Rail Transportation Agreement between AP & L (now Entergy), UP, WRPI, and CNW (the "1983 UP Agreement") covered the movement of coal from the coal mines in the PRB to Kansas City, Missouri. A separate rail transportation agreement between AP & L (hereinafter "Entergy") and MP (the "1983 MP Agreement") governed the movement of coal from Kansas City, Missouri, to the White Bluff and Independence Stations. The 1983 UP Agreement obligated Entergy to ship a minimum of 90% of all PRB coal with these railroads. (1983 UP Agreement, Articles VI.A, VI .B). In exchange, UP agreed to transport these amounts of coal within certain Elapsed Transit Times.1 (1983 UP Agreement, Article IX.A). The original term of the 1983 Agreements was twenty years with option periods available. The parties subsequently agreed to a duration of thirty years also with option periods available. The 1983 Agreements also contained a choice of law provision providing that the contract shall be governed according to Arkansas law. (See 1983 UP Agreement, Article XIX, incorporated by the 1991 Interim Agreement § 20; 1983 MP Agreement, Article XX). In December of 1982, during the negotiations of the 1983 agreements, UP merged with MP. (Gough Deposition at 16). At some point, UP also combined with CNW (WRPI), and UP is currently the sole railroad party to the Entergy contractual agreements. (Jensen Affidavit ¶ 3).
In May of 1989, UP closed its "Carthage Subdivision" line, which was the route from Kansas City, Missouri, through Pleasant Hill, Missouri, and Carthage, Missouri, and then through the Ozark Mountains to Newark, Arkansas, where the Independence plant is located. (Jensen Affidavit ¶ 7). Although the movement of coal to the White Bluff Station was unaffected by the closure of the Carthage Subdivision (Jensen Affidavit ¶ 8), the closure resulted in coal trains having to approach the Independence Station from the south, i.e. from Kansas City then south via Okay Junction, Oklahoma, to North Little Rock, Arkansas, and then north from there to Newark, Arkansas. (Jensen Affidavit ¶ 8, Exhibits 7, 8). The new route to the Independence Station was 353 miles longer round trip than the old Carthage Subdivision route. (Jensen Affidavit ¶ 9). UP offered Entergy a refund of 8 cents per ton for all coal transported to the Independence Station via the longer route to compensate for increased wear and tear on the railcars. Id. After the closure of the Carthage Subdivision, the parties did not amend the Elapsed Transit Time of 133 hours for the Independence Plant in the 1983 agreement. Id.
In 1991, Entergy was looking at shipping alternatives, including: (1) coal by wire,2 (2) obtaining some coal via BN and (3) an option to burn more coal. (Jacob Deposition at 130-32). Discussions were subsequently held between Entergy and the UP railroads whereby Entergy agreed to ship 100% of its PRB coal or 10 million tons annually after 1990 via WRPI, UP and MP in exchange for reduced rates. (1991 Interim Agreement § 5.A.) These agreements were reflected in the 1991 Interim Agreement ("Interim Agreement").3
Under the 1991 Interim Agreement, Entergy agreed to provide a notice to UP, within thirty (30) days of the upcoming month, stating the total number of tons of coal it would tender during that month — i.e., the "Shipper's Declared Monthly Volume Commitment." (Interim Agreement § 5.F.2). The total number of tons contained in three consecutive Shipper's Declared Monthly Volume Commitment notices constituted the "Shipper's Declared Quarterly Volume Commitment" for each calendar quarter. (Interim Agreement § 5.F.3). UP then was required to deliver these amounts of coal during that quarter without exceeding the Elapsed Transit Times of 160 hours for the White Bluff Station, and 133 hours for the Independence Station. (Interim Agreement § 8.A.2). If UP was deficient in transporting the Declared Quarterly Volume Commitment during a calendar quarter due to a failure to meet these Elapsed Transit Times, a Deficit Tonnage was calculated.4 (Interim Agreement § 8.B). UP was allowed to make up the deficits in the next quarter by using its own rail cars, or if it lacked sufficient railcars, the railroad could use Entergy railcars at Entergy's option by paying a lease rate. (Interim Agreement §§ 8.B.3, 8.B.7.) If the deficit was still not made up in the next quarter, the Interim Agreement provided that UP would pay certain liquidated damages to Entergy. (Interim Agreement § 8.B.5.)
The Interim Agreement, while superseding certain provisions in the 1983 agreements, incorporates other provisions from the 1983 agreements. One of these incorporated provisions is the clause found in the Interim Agreement § 22 entitled "Termination." This clause was retained from the 1983 UP Agreement and provides: "Termination of this Agreement for any reason shall not release any party from any obligation that may have accrued prior to such termination, nor shall it preclude any party from exercising any remedies it may have in law or equity to enforce such obligations." (1983 UP Agreement, Article XXI).
The parties proceeded with transportation under this...
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Entergy Services, Inc. v. Union Pacific R. Co., No. 8:98CV345.
...Montana to Entergy's coal-fired power plants in Arkansas. The facts of this case were previously recited at Entergy Servs. Inc. v. Union Pac. R.R. Co., 35 F.Supp.2d 746 (D.Neb.1999), and will not be repeated here, except where relevant to the present motion. After careful consideration of t......