Jewell Coke Co. v. Arcelormittal U.S. Inc.

• Decision Date: 27 December 2010
• Docket Number: Case Nos. 1:10–CV–1946, 1:10–CV–362.
• Citation: 756 F.Supp.2d 858
• Parties: JEWELL COKE COMPANY, L.P., Plaintiff,v.ARCELORMITTAL USA, INC., Defendant.
• Court: U.S. District Court — Northern District of Ohio

756 F.Supp.2d 858

JEWELL COKE COMPANY, L.P., Plaintiff,

v.ARCELORMITTAL USA, INC., Defendant.

Case Nos. 1:10–CV–1946, 1:10–CV–362.

United States District Court, N.D. Ohio.

Dec. 27, 2010.

Hugh E. McKay, Charles W. Zepp, Porter, Wright, Morris & Arthur, Cleveland, OH, for Plaintiff.Elissa L. Isaacs, Steptoe & Johnson, Chicago, IL, George R. Calhoun, V, Steptoe & Johnson, Washington, DC, John M. Alten, Paula Gallito Shakelton, Ulmer & Berne, Cleveland, OH, for Defendant.

OPINION & ORDER [Resolving Doc. No. 28]

JAMES S. GWIN, District Judge:

In this contract dispute, Plaintiff and Counter–Defendant Jewell Coke Company (“Jewell”) moves the Court to dismiss the counter-claim filed by the Defendant and Counter–Claimant, ArcelorMittal USA, Inc. (“ArcelorMittal USA”) under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. [Doc. 28–1.] ArcelorMittal USA opposes the motion. [Doc. 94.] Jewell has replied. [Doc. 114.]

For the following reasons, the Court DENIES Jewell's motion to dismiss.

I. Background

In this contract dispute, Defendant ArcelorMittal USA files a counterclaim against Plaintiff Jewell, alleging that Jewell fraudulently induced ArcelorMittal USA to guaranty a coke supply contract between Jewell and ArcelorMittal USA's subsidiaries, ArcelorMittal Cleveland Inc. and ArcelorMittal Indiana Harbor LLC (collectively “ArcelorMittal Cleveland & Indiana”). [Doc. 18 at ¶¶ 72–80.] Jewell is a limited liability partnership that produces blast furnace coke in Vansant, Virginia. [Doc. 1 at ¶ 8.] ArcelorMittal USA is a Delaware corporation with its principal place of business in Chicago, Illinois. [Doc. 18 at ¶ 5.] ArcelorMittal USA manufactures steel and is the parent corporation of ArcelorMittal Cleveland & Indiana. [Doc. 1 at ¶ 9; Doc. 18 at ¶ 9.] The Court enjoys diversity jurisdiction under 28 U.S.C. § 1332(a)(1) since there is complete diversity and the amount in controversy exceeds $75,000.

This particular action has been consolidated with a related action between Jewell and ArcelorMittal Cleveland & Indiana, and it arises out of the same nucleus of facts. See ArcelorMittal Cleveland, Inc. v. Jewell Coke Co., L.P., No. 1:10–CV–00362 (N.D.Ohio). In October 2002, ArcelorMittal Cleveland & Indiana ¹ and Jewell entered into an agreement that Jewell would annually supply approximately 700,000 tons of blast furnace coke. [Doc. 18 at ¶ 14.] This agreement ran through 2005, but gave ArcelorMittal Cleveland & Indiana an option to extend the contract through 2007. [ Id.] In October 2003, ArcelorMittal Cleveland & Indiana also contracted to purchase 550,000 tons of coke annually from the Haverhill North Coke Company, a Jewell affiliate (“Haverhill Coke Agreement”). [ Id. at ¶ 17.]

Also in October 2003, ArcelorMittal Cleveland & Indiana and Jewell executed a restated and amended coke supply agreement (“the amended purchase agreement”). [ Id. at ¶ 16.] The amended purchase agreement extended the original 2002 agreement through 2007 and it also contracted for the sale of 700,000 tons of coke annually by Jewell from January 1, 2008 through 2020 under a new pricing formula. [ Id. at ¶¶ 18–19.] The parties based the amended purchase agreement pricing formula on the price of coke sold to ArcelorMittal Cleveland & Indiana under the 2003 Haverhill Coke Agreement. [ Id. at ¶¶ 18–23.]

In the related litigation, now consolidated with this action, ArcelorMittal Cleveland & Indiana allege that the new pricing formula in the amended purchase agreement contains an error, which is causing them to pay an approximately 50% premium for Jewell coke. ArcelorMittal Cleveland, Inc. v. Jewell Coke Co., L.P, 750 F.Supp.2d 839, 2010 WL 3749592 (N.D.Ohio Sept. 21, 2010). In that action, ArcelorMittal Cleveland & Indiana claim that a multiplier in the new pricing formula was inverted—a mistake that the Plaintiffs in that suit calculate already cost them $100 million, with a total amount over the life of the contract of more than $1 billion. Id. ArcelorMittal Cleveland & Indiana seek to have the amended purchase agreement reformed or rescinded due to unilateral or mutual mistake, and also assert claims of fraud, civil recovery, civil conspiracy, and a civil RICO violation against Jewell. [Doc. 61.]

In 2007, ArcelorMittal USA was ordered by the United States Department of Justice to sell its facility at Sparrows Point for antitrust reasons. [Doc. 18 at ¶¶ 52–55.] At that time, Sparrows Point LLC was also a party to the previously discussed amended purchase agreement. [ Id.] In connection with the sale of Sparrows Point LLC, Jewell and ArcelorMittal USA entered into a letter agreement (“guaranty agreement”), in which both Jewell and Haverhill consented to Sparrows Point's withdrawal from the amended purchase agreement. [ Id.] As a condition for allowing the withdrawal, ArcelorMittal USA guaranteed the obligations of ArcelorMittal Cleveland & Indiana under the amended purchase agreement. [ Id.] The guaranty agreement currently remains in force.

On September 1, 2010, Jewell filed a complaint, seeking a declaratory judgment ruling that in the event that the amended purchase agreement between Jewell and ArcelorMittal Cleveland & Indiana is reformed or rescinded, that ArcelorMittal USA is still required to guarantee payment under the amended purchase agreement's original terms. [Doc. 1 at ¶ 56.] Jewell also asserted a claim of negligent misrepresentation, alleging that ArcelorMittal USA was aware that ArcelorMittal Cleveland & Indiana believed that the amended purchase agreement contained a mistake in 2008 when the guaranty agreement was signed, but that ArcelorMittal USA purposely withheld this information from Jewell. [ Id. at ¶¶ 58–65.] The Court granted ArcelorMittal USA's motion to dismiss, dismissing the declaratory judgment count as unripe and the negligent misrepresentation count for failure to state a claim. [Doc. 20.]

In its counterclaim, ArcelorMittal USA alleges that Jewell and its parent corporation, Sunoco, became aware of the mistake in the pricing formula in the amended purchase agreement in 2005—about two years after the agreement was signed—but that Jewell did not inform ArcelorMittal Cleveland & Indiana of the mistake before ArcelorMittal USA entered the guarantee. [Doc. 18 at ¶ 36.] ArcelorMittal USA says that Jewell instead schemed to profit from this mistake, while also attempting to insulate itself from the consequences of the mistake's eventual discovery. [ Id. at ¶ 37.] According to ArcelorMittal USA, the final step in this fraudulent scheme was inducing ArcelorMittal USA to sign the guaranty agreement, which guaranteed its subsidiaries' obligations under the incorrect pricing provision. [ Id. at ¶¶ 52–68.] ArcelorMittal USA alleges, first, that during the negotiations of the guaranty agreement that Jewell fraudulently concealed its knowledge of the mistake, and second, that Jewell also concealed that it was seeking the guaranty so it could later try to force ArcelorMittal USA to pay for coke under the mistaken pricing formula, even if that formula was later reformed or rescinded by a court. [ Id. at ¶¶ 58–65.] ²

Jewell says that this Court should dismiss ArcelorMittal USA's counterclaim under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief could be granted. Specifically, Jewell argues that (1) it did not have a duty to inform ArcelorMittal USA of the purported mistake; (2) ArcelorMittal USA did not justifiably rely upon Jewell's alleged omission; and (3) ArcelorMittal USA failed to plead a non-speculative pecuniary injury. [Doc. 28–1.]

II. Legal Standard

A court may grant a motion to dismiss only when “it appears beyond doubt” that the plaintiff fails to state a claim upon which relief may be granted. Fed.R.Civ.P. 12(b)(6); Conley v. Gibson, 355 U.S. 41, 45, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim for relief that is plausible on its face.’ ” Ashcroft v. Iqbal, –––U.S. ––––, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). The plausibility requirement is not a “probability requirement,” but requires “more than a sheer possibility that the defendant has acted unlawfully.” Id.

Federal Rule of Civil Procedure 8 provides the general standard of pleading and only requires that a complaint “contain ... a short plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). “Rule 8 marks a notable and generous departure from the hyper-technical, code-pleading regime of a prior era, but it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions.” Iqbal, 129 S.Ct. at 1949 (citations removed). In addition, “[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.” Fed.R.Civ.P. 9(b).

In deciding a motion to dismiss under Rule 12(b)(6), “a court should assume the[ ] veracity” of “well-pleaded factual allegations,” but need not accept a plaintiff's conclusory allegations as true. Iqbal, 129 S.Ct. at 1949–51.

III. Analysis

The only claim remaining in ArcelorMittal USA's complaint is its counterclaim for fraudulent inducement. As a preliminary matter, the Court must determine if New York state law applies to this claim. The Court previously held that the choice of law provision in the guaranty agreement, specifying that New York law will govern, is valid and enforceable. Jewell Coke Co., L.P. v. ArcelorMittal USA, Inc., 2010 WL 4628756, at *6–7 (N.D.Ohio., Nov. 8, 2010). Having previously made that determination, the Court must now decide whether a claim of fraudulent inducement falls within the scope of that choice of law provision. The Sixth Circuit previously held that fraud and...