Virginia Electric and Power Co. v. Bransen Energy, Inc., 030917 FED4, 16-1254

Attorney:Sam Preston Burchett, SAM P. BURCHETT ATTORNEY AT LAW, Lexington, Kentucky, for Appellant. Benjamin L. Hatch, MCGUIREWOODS LLP, Norfolk, Virginia, for Appellee. E. Duncan Getchell, Jr., J. William Boland, Ryan D. Frei, Katherine Mims Crocker, MCGUIREWOODS LLP, Richmond, Virginia, for Appellee.
Judge Panel:Before GREGORY, Chief Judge, and THACKER and HARRIS, Circuit Judges.
Opinion Judge:THACKER, CIRCUIT JUDGE:
Party Name:VIRGINIA ELECTRIC AND POWER COMPANY, d/b/a Dominion Virginia Power, Plaintiff - Appellee, v. BRANSEN ENERGY, INC., f/k/a Bransen Energy, LLC, Defendant-Appellant.
Case Date:March 09, 2017
Docket Nº:16-1254
 
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VIRGINIA ELECTRIC AND POWER COMPANY, d/b/a Dominion Virginia Power, Plaintiff - Appellee,

v.

BRANSEN ENERGY, INC., f/k/a Bransen Energy, LLC, Defendant-Appellant.

No. 16-1254

United States Court of Appeals, Fourth Circuit

March 9, 2017

          Argued: January 25, 2017

         Appeal from the United States District Court for the Eastern District of Virginia, at Richmond. John A. Gibney, Jr., District Judge; James R. Spencer, Senior District Judge. (3:14-cv-00538-JAG)

         ARGUED:

          Sam Preston Burchett, SAM P. BURCHETT ATTORNEY AT LAW, Lexington, Kentucky, for Appellant.

          Benjamin L. Hatch, MCGUIREWOODS LLP, Norfolk, Virginia, for Appellee.

         ON BRIEF:

          E. Duncan Getchell, Jr., J. William Boland, Ryan D. Frei, Katherine Mims Crocker, MCGUIREWOODS LLP, Richmond, Virginia, for Appellee.

          Before GREGORY, Chief Judge, and THACKER and HARRIS, Circuit Judges.

          THACKER, CIRCUIT JUDGE:

         Seeking fuel for a newly constructed power plant, Virginia Electric and Power Company, doing business as Dominion Virginia Power ("Dominion"), contracted with Bransen Energy, Inc. ("Bransen"), and paid nearly $27 million for coal product which would satisfy rigid specifications and environmental regulations. However, the product Bransen delivered, consisting of coke breeze and waste coal, fell far short of these requirements. After Dominion filed suit in the United States District Court for the Eastern District of Virginia, the district court awarded Dominion partial summary judgment on claims related to Bransen's delivery of coke breeze, and then held for Dominion after a bench trial on its claims related to the delivery of waste coal. In total, the district court awarded over $22 million in damages. Bransen filed this appeal, arguing that the district court erred by ruling in favor of Dominion as to both liability and damages. Finding no error, we affirm for the reasons that follow.

         I.

         A.

         In June 2008, Dominion began constructing the Virginia City Hybrid Energy Center (the "Plant") in Wise County, Virginia. The Plant is "a 600-megawatt, clean-coal powered electrical generation facility." J.A. 3960.1 The commissioning process for a new power plant includes a "testing phase" to assure compliance with regulatory standards. In November 2011, Dominion began the testing phase.

         Three years earlier, in 2008, Dominion began soliciting suppliers of performance fuel, a high-quality coal product, for the testing phase. As an industry standard, power plants use performance fuel to test equipment and determine operating capacity because of the quality and consistency of the fuel, which is higher than the quality of fuel a plant uses post-commissioning. Dominion sought performance fuel that would be acceptable directly at the Plant without further processing and would comply with environmental permits acquired from the Virginia Department of Environmental Quality. Ultimately, Bransen contracted with Dominion to supply about half of the expected performance fuel necessary for testing, totaling 600, 000 tons of coal product for nearly $27 million. The testing phase lasted around eight months, and the Plant was commissioned and began commercial operations as planned on July 10, 2012 (the "commercial operations date" or "COD").

         1.

         Before the Plant's commissioning, the parties entered three contracts relating to the testing phase: (1) the Master Coal Purchase and Sale Agreement (the "Master Agreement"); (2) the Confirmation for the Purchase of Performance Fuel (the "Pre-COD Confirmation");[2] and (3) the Coal Services Agreement (the "Services Agreement"). The parties entered into two additional agreements for the purchase of up to three million tons of "waste coal" for a term beginning on the commercial operations date (the "Post-COD Confirmations").3 Dominion also entered a Land Lease Agreement (the "Lease") with Coal Technology International, LLC ("CTI"), to lease property on which Dominion would store and blend coal purchased from Bransen before delivery to the Plant.

         a.

         The Master Agreement, dated November 8, 2010, governed all subsequent dealings between the parties. It required the parties to enter transactions regarding the sale and purchase of coal by way of written Confirmation -- a separate contract between the parties pursuant to the Master Agreement. If such Confirmation is inconsistent with the Master Agreement, the Confirmation prevails over the Master Agreement unless the Master Agreement otherwise provides.

         b.

         The Pre-COD Confirmation, dated January 26, 2011, required Bransen to provide between 450, 000 and 600, 000 tons of "Run-of-Mine Coal, " of which Dominion was required to buy at least 450, 000 tons with an option to purchase an additional 150, 000 tons. In the Pre-COD Confirmation, Dominion clarified that it would only accept Run-of-Mine coal by placing an "X" over a line next to a paragraph defining Run-of-Mine coal. By contrast, two other products and their definitions -- "Coal" and "Waste Coal" --appear, respectively, above and below the paragraph for Run-of-Mine coal. There was no "X" marked next to either of those product descriptions.

         The Pre-COD Confirmation defines Run-of-Mine coal as conforming to specifications provided in another section of the Pre-COD Confirmation, and it required the coal to be "substantially consistent in quality throughout a Shipment, " and to have "no intermediate sizes (including fines) added or removed, " but it allowed "limited amounts of extraneous material." J.A. 462. The specifications referenced in this definition, entitled "Performance Fuel Specifications, " establish rejection limits for criteria such as the Btu4 measurement, moisture rate, and sulfur and ash composition. Given "the different technology of the [Plant's] boilers . . . and stringent environmental limits, " the Pre-COD Confirmation also allowed Dominion to suspend deliveries if the coal "adversely affect[ed] operation" of the Plant within two years of the commercial operations date. Id. at 466.

         c.

         Dominion entered the Lease as well as the Services Agreement on the same date as the Pre-COD Confirmation. Though Bransen was not a party to the Lease, the opening recital of the Lease acknowledges the Pre- and Post-COD Confirmations along with the Services Agreement. Indeed, the Lease would terminate upon the termination of the Services Agreement or any Confirmation then in effect, either before or after commissioning. The Services Agreement assigned Bransen a host of duties related to the transportation, management, regulation, and testing of the coal held at the CTI property, including analyzing the coal to ensure compliance with the performance fuel specifications, which were identical to those in the Pre-COD Confirmation.

         d.

         The agreements limit relief available in the case of either party's breach. The Master Agreement allows a nondefaulting party to terminate the Master Agreement and all other transactions between the parties "[u]pon the occurrence and during the continuance of an Event of Default." J.A. 147. Events of Default include, the failure of the Defaulting Party to comply with any material obligation under a Transaction covered by this Master Agreement (. . . except for Seller's obligations to deliver Coal pursuant to the Specifications contained in a Confirmation, the exclusive remedy for which is provided in Sections 5.1, 5.2 and 5.3) and such failure continues uncured for three (3) Business Days after written notice thereof . . . .

J.A. 145-46 (emphasis supplied). Section 5 thus provides three exclusive remedies for product delivered pursuant to a Confirmation that does not conform to the specifications in that Confirmation.

         Section 5.1 allows for "quality adjustments" for nonconforming product, resulting in price modifications calculated pursuant to formulae provided in an exhibit to the Agreement. J.A. 140. Alternatively, Section 5.2 provides Dominion "Rejection Rights, " which allow either rejecting a shipment or "reaching a mutually acceptable price adjustment or other arrangement with" Bransen, if an independent third-party analyst determines that the shipment does not conform to specifications. Id. As yet further recourse, Section 5.3 provides "Suspension Rights" pursuant to which Dominion may "suspend the receipt of future shipments" after receiving multiple nonconforming shipments without rejecting them. Id. at 140-41. For breach of any provision for which the Master Agreement does not provide an express remedy, the Master Agreement limits recoverable damages "to direct actual damages, " excluding "consequential, incidental, punitive, exemplary or indirect damages, lost profits, or other business interruption damages." Id. at 150-51 (capitalization removed).

         2.

         a.

         From ...

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