Traxys North America LLC v. Concept Mining Incorporated , 510 F. App'x 262 ( 2013 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 11-2054
TRAXYS NORTH AMERICA LLC,
Plaintiff - Appellee,
v.
CONCEPT MINING INCORPORATED,
Defendant - Appellant.
Appeal from the United States District Court for the Western
District of Virginia, at Abingdon. James P. Jones, District
Judge. (1:1-cv-00029-JPJ-PMS)
Argued: December 5, 2012 Decided: February 19, 2013
Before DUNCAN, AGEE, and DAVIS, Circuit Judges.
Affirmed in part and reversed in part by unpublished opinion.
Judge Agee wrote the opinion, in which Judge Duncan and Judge
Davis concur.
Robert Hannen, ECKERT SEAMANS CHERIN & MELLOTT, LLC, Canonsburg,
Pennsylvania, for Appellant. Wade Wallihan Massie, PENN, STUART
& ESKRIDGE, Abingdon, Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
AGEE, Circuit Judge:
In this diversity-based breach of contract action,
Concept Mining, Inc. (“Concept”) 1 appeals a damages award of
$4,167,760, and a prejudgment interest, attorneys' fees, and
litigation expenses award of $547,518.19 in favor of Traxys
North America, LLC (“Traxys”). The district court held that
Concept breached its 2009 obligation to deliver coal to Traxys
and that this breach excused Traxys from having to exercise an
option to extend the obligation through 2010. It thus held
Concept liable in damages to Traxys for both 2009 and 2010.
Pursuant to the parties’ agreement, Traxys was also entitled to
recover prejudgment interest and “legal costs” arising from the
breach. The district court construed this provision to include
attorneys' fees, expert witness fees, and certain witness travel
expenses.
For the reasons set forth below, we affirm the
district court’s judgment regarding the 2009 breach and
attendant damages, but we reverse the district court’s judgment
as to a breach in 2010 or any resulting damages. In light of
this disposition, and because we conclude the district court
misconstrued the provision regarding recovery of “legal costs,”
1
In 2008, ArcelorMittal acquired Concept; for simplicity,
the opinion will refer simply to Concept.
2
we also vacate the district court’s judgment concerning
prejudgment interest, attorneys' fees, and certain litigation
expenses, and remand the case in order for the district court to
recalculate an appropriate award.
I.
In 2007, Concept and Traxys entered into a contract
(the “Contract”) in which Concept agreed to supply Traxys with
approximately 4,000 tons of coal per month for a total of
approximately 48,0000 tons in 2008. A Special Provisions Clause
set forth reciprocal options to extend the Contract beyond 2008:
This transaction has an additional two year term that
is an integral part of the contract with a $5.00 (Five
Dollar) collar for each year. Commencing on November
1, 2008, the Parties shall mutually agree to negotiate
in good faith and attempt to agree upon a new Contract
to be in effect for Contract year 2009. . . . If . . .
Traxys is unwilling to pay $83.00 per ton fob car as a
Base Price[,] . . . then [Concept] and [Traxys] agree
this Agreement shall terminate on December 31, 2008.
(J.A. 23.)
In the fall of 2008, Traxys elected to extend the
Contract one additional year when it sent Concept a letter
agreeing to pay the high-end $5.00 collar of $83.00 per ton fob
car of coal in 2009. Although the parties remained in contact
throughout 2009, Concept did not deliver any coal to Traxys
3
toward the 2009 obligation. Neither party exercised the option
to extend the Contract into 2010. 2
In May 2010, Traxys filed the underlying complaint in
the United States District Court for the Western District of
Virginia alleging Concept had breached the Contract by failing,
inter alia, to supply coal in 2009 and 2010. 3 Concept then filed
a counterclaim alleging Traxys breached the Contract by
thwarting delivery of the coal and thereby violating its duty of
good faith and fair dealing. Both parties asserted they were
entitled to damages based on the other party failing to fulfill
its obligations during 2009 and 2010, which resulted in no coal
being shipped for either year. At the heart of these claims lay
the interpretation of the Special Provisions Clause, whether a
binding Contract existed in 2009 and/or 2010, and which party
(if either) breached the Contract in 2009 and/or 2010.
Following a bench trial, the district court entered
judgment upon an opinion in favor of Traxys on its claim and
2
Although the parties disputed some of these facts at
various stages in the proceedings below, they do not dispute
them on appeal.
3
Traxys also sought damages for a small portion of coal
Concept failed to deliver under the 2008 obligation. Concept
does not raise any issue relating to the district court’s
findings regarding a partial 2008 default and damages arising
therefrom, and as such this opinion does not address or affect
the district court’s disposition of Traxys’ claims as to damages
for the 2008 default.
4
against Concept’s counterclaim. Traxys N. Am. v. Concept
Mining, Inc., 808 F. Supp. 2d 853 (W.D. Va. 2011). The district
court found that Concept’s lead coal buyer for the Americas,
Liem Hazoumé, had misinterpreted the Contract, which mistakenly
“led him, on behalf of Concept, to take the position with Traxys
that there was no binding agreement for 2009.” Id. at 860. It
further found that “Concept was obligated to deliver the 2009
tonnage” as a result of Traxys’ exercise of the 2009 option, and
that Concept materially breached the Contract by failing to
deliver coal toward its 2009 obligation. Id. The district
court concluded that Traxys’ remedies for the breach included
awaiting performance, and that it did not violate a duty of good
faith by remaining silent, despite the fact that its “silence
may have been in part strategic and sensitive to market
considerations.” Id. at 862.
The district court rejected Concept’s argument that
“Traxys’ refusal to communicate . . . frustrated Concept’s
ability to fulfill its obligations.” Id. at 863. This is so,
the court concluded, because Traxys “advised Concept of its
ability to accept any proposed delivery dates,” id. at 864, and
yet Concept never sent Traxys any such dates and thus had not
“demonstrated its willingness to perform and [thereby] signified
its intent to remedy its delinquency.” Id. at 863.
5
In addition, the district court found that “[b]ecause
Concept repudiated any obligation to deliver coal under the
Contract after 2008 and was in breach of the Contract throughout
2009, Traxys was not required to give any notice of an election
to take the 2010 tonnage.” Id. at 860. The court concluded
that Concept’s “ongoing breach throughout 2009 had legal
consequence for the parties’ status in 2010.” Id. at 865.
Namely, it held that because Concept was in breach of contract
in 2009, Concept had no right to demand performance of condition
precedents to performance such as requiring Traxys to make “a
futile election on the 2010 tonnage.” Id. The court concluded
Concept was liable to Traxys for its failure to deliver any coal
during 2010.
On appeal, the parties do not dispute the district
court’s method of calculating damages. Broken out by year, the
damages award consisted of $46,696 for 2008, $800,367 for 2009,
and $3,324,697 for 2010, for a total award of $4,167,760. Id.
at 866.
After entry of the damages judgment, Traxys moved for
prejudgment interest, attorneys’ fees, and other litigation
expenses. The Contract provided that in the event of Concept’s
unexcused failure to perform, Concept would be obligated to pay
“Legal Costs incurred by [Traxys].” (J.A. 27.) The parties
disputed the definition of “Legal Costs,” and whether it
6
included the attorneys' fees and litigation expenses. The
district court found “that the plain meaning of ‘Legal Costs’ as
used in the Contract includes expenses incidental to litigation,
such as attorneys’ fees and disbursements, as well as expert
witness fees.” Traxys N. Am., LLC v. Concept Mining, Inc., Case
No. 1:10CV00029, 2011 U.S. Dist. LEXIS 108530 (W.D. Va. Sept.
22, 2011). It explained:
[t]here would be no need to expressly provide in the
Contract for the recovery of court costs to a
prevailing party, since such costs would be
recoverable as a matter of course. The additional
recovery of “Legal Costs” in the Contract must include
attorneys’ fees and other normal litigation expenses.
Id. at *4. Concept did “not contest the [calculation] of the
attorneys’ fees and disbursements sought or the amount of the
expert witness fees,” which the district court concluded were
reasonable. Id. It did, however, reduce “certain witness
travel expenses.” Id. at *4. Accordingly, the court awarded
Traxys a total of $547,518.19 for prejudgment interest,
attorneys’ fees and disbursements, witness fees, and expenses.
Id. at *5.
Concept noted a timely appeal from both orders, and we
have jurisdiction under 28 U.S.C. § 1291.
7
II.
In this appeal from a bench trial, we review the
district court’s findings of fact for clear error and its
conclusions of law de novo. Roanoke Cement Co. v. Falk Corp.,
413 F.3d 431, 433 (4th Cir. 2005). Contract interpretation is
also subject to de novo review. Frahm v. United States, 492
F.3d 258, 262 (4th Cir. 2007). As a court possessing federal
jurisdiction by virtue of diversity of citizenship, we apply
state law in interpreting the Contract. See Universal Concrete
Prods. v. Turner Constr. Co., 595 F.3d 527, 529 (4th Cir. 2010).
Pursuant to the Contract’s choice-of-law provision, the law of
the state of New York controls in this case. New York has
adopted the Uniform Commercial Code, N.Y. U.C.C. (“hereinafter
U.C.C.”), which applies to the Contract. See N.Y. U.C.C. Law §
2-101 et subseq.
III.
Concept first contends the district court erred in
concluding that it materially breached the Contract by failing
to supply Traxys with coal pursuant to the 2009 obligation. It
asserts that the failure to deliver coal does not constitute a
material breach because Traxys’ conduct excused Concept from any
obligation under the Contract. To support this contention,
Concept points to what it identifies as Traxys’ systematic
8
avoidance and refusal to communicate with Concept in 2009.
Concept argues the district court erred in failing to conclude
that these acts by Traxys violated the duty of good faith and
fair dealing. As a result of this claimed breach by Traxys,
Concept contends it was excused from fulfilling any obligation
to perform under the Contract.
To establish a prima facie case of breach of contract
under New York law, a plaintiff must prove: “(1) the existence
of a contract; (2) a breach of that contract; and (3) damages
resulting from the breach.” Nat’l Mkt. Share, Inc. v. Sterling
Nat’l Bank, 392 F.3d 520, 525 (2d Cir. 2004). Concept avers
that Traxys failed to establish the second element of a prima
facie case, that Concept’s failure to deliver coal constituted a
“breach” of the parties’ contract in light of Traxys’ conduct.
We have reviewed the record and conclude the district
court did not err in holding that Concept materially breached
the Contract and that Traxys was not in breach as to 2009.
Concept was thus correctly found to be liable for damages
arising from its failure to deliver coal to Traxys in 2009.
Significantly, Concept’s argument on appeal differs considerably
from the position that it took both during the events in
question and at various stages in the proceedings in the
district court. While it now concedes that Traxys exercised the
2009 option and that the parties consequently had a binding
9
contract that year, that is not the position it previously held.
The record unmistakably reflects that Concept’s employee Hazoumé
did not believe that Concept was obligated to deliver any coal
toward a 2009 obligation because he did not believe the parties
had a binding agreement covering that period of time. In
communication after communication, he demonstrated his
willingness to enter into a new agreement for 2009, but
disavowed any existing obligation. Hazoumé’s deposition
testimony similarly reflects his mistaken interpretation of the
Contract’s Special Provisions Clause and the legal effect of
Traxys’ letter exercising the 2009 option, which led to his
belief that there was not a binding contract for 2009.
Hazoumé’s communications to Traxys informed them that Concept
did not intend to deliver coal toward a 2009 obligation.
Moreover, because the Contract provided that Concept was to
deliver approximately 4,000 tons of coal each month, at the end
of each month in 2009 when Concept had not delivered any coal,
Concept was in breach.
Contrary to Concept’s argument, Traxys’ conduct did
not excuse Concept from the obligation to deliver coal in 2009.
Notably, Concept’s breach preceded the period of time during
which it claims Traxys refused to communicate. See N.Y. U.C.C.
Law § 2-610, cmt. 1 (stating that an anticipatory repudiation
occurs “upon an overt communication of intention or an action
10
which renders performance impossible or demonstrates a clear
determination not to continue with performance.”). Upon
Concept’s prior breach, Traxys was entitled under U.C.C. § 2-610
to “await performance by the repudiating party” “for a
commercially reasonable time.” See also N.Y. U.C.C. Law § 2-
610, cmt. 4 (discussing the right of a non-breaching party to
choose “[i]naction and silence” so long as it does not mislead
the breaching party). Furthermore, Concept overstates Traxys’
“silence,” as the record reflects that Traxys maintained
communication with Concept throughout 2009 even though it
channeled contact through one representative and that
representative strategized as to how and when to communicate
with Concept. The record also reflects that Traxys
unequivocally informed Concept that it was “completely flexible
on loading dates each month and [stood] willing to work with
Concept on a loading schedule favorable to both parties.
[Traxys] look[ed] forward to [Concept’s] response as to when
[it] will begin shipping tons.” (J.A. 392.) That sentiment was
repeated in numerous communications to Concept throughout 2009.
Yet at no time did Concept suggest any potential loading dates—a
duty that it had under the plain language of the Contract—in
11
order to initiate the process of scheduling transfer of the
coal. 4
At bottom, it was Concept’s misperception that a
contract did not exist rather than Traxys’ behavior that
resulted in a material breach of the Contract by Concept. The
district court did not err in concluding that Concept, not
Traxys, materially breached the Contract by failing to deliver
coal in 2009.
IV.
Concept next contends the district court erred in
determining it breached the Contract as to 2010 and in awarding
damages arising from its failure to deliver coal for that year.
It asserts the district court erred in excusing Traxys from the
condition precedent to exercise the 2010 option by agreeing to
the price collar set forth in the Special Provisions Clause. 5
4
Traxys also raises numerous arguments challenging the
district court’s conclusion Concept breached the Contract by
failing to set a shipping date because the parties’ course of
performance modified the Contract’s terms. We have considered
those arguments and reject them for substantially the same
reasons expressed in the district court’s opinion. See 808 F.
Supp. 2d at 863-64.
5
Concept also challenges the district court’s determination
of what price the Special Provisions Clause set for 2010.
Because we are reversing the court’s decision on other grounds,
we need not address that argument.
12
Concept maintains that because Traxys never formally exercised
the 2010 option, no contract existed for that year.
Consequently, Concept argues it cannot be held liable for
damages arising from any failure to deliver coal during that
year.
We agree that the district court erred in excusing
Traxys from the Contract requirement to exercise the 2010 option
and holding Concept in breach for failing to deliver coal in
2010. As noted, the Contract’s original term ended at the end
of December 2008. The Special Provisions Clause contained two
one-year reciprocal options allowing the parties to extend the
Contract under certain conditions. But unless either party
exercised its option, there was no binding contract after
December 31, 2008. An option contract is simply “an agreement
to hold an offer open and [it] confers on the optionee . . . the
right to purchase at a later date. While the optionor cannot
act in derogation of the terms of an option agreement, the
optionee is not bound until the option is actually exercised.”
22 N.Y. Jur. Contracts § 55 (citing Kaplan v. Lippman, 552
N.E.2d 151, 153 (N.Y. 1990)). In exercising the option,
however, the optionee must act strictly “in accordance with the
time and in the manner specified in the option.” Kaplan, 552
N.E.2d at 153.
13
Here, Traxys properly exercised a one-year option to
extend the Contract through 2009. But because the Special
Provisions Clause established two separate one-year options,
Traxys was required to independently exercise the second one-
year option before the Contract’s term could be extended into
2010. Until Traxys exercised the option, Concept’s only
obligation was to hold open the sale offer; it had no duty to
deliver coal in 2010 absent Traxys’ proper exercise of the
second one-year option. See Toroy Realty Corp. v. Ronka Realty
Corp., 493 N.Y.S.2d 800, 882-83 (N.Y. App. Div. 1985)
(“Ordinarily, option contracts create only unilateral
obligations upon the seller to hold a sale offer open for the
duration of the option. The obligations of the parties are
transformed into a bilateral contract of sale only upon the
exercise of the option[.]”) (citing Benedict v. Pincus, 84 N.E.
284, 286 (N.Y. 1908)).
Traxys failed to provide the requisite notice to
extend the Contract’s duration beyond December 31, 2009. While
Concept’s breach in 2009 affected the parties’ rights and
responsibilities in 2009, it did not alter the Contract’s
duration or relieve Traxys of its independent duty to exercise
the 2010 option if it so desired. The district court thus erred
in concluding otherwise. Accordingly, we reverse the district
14
court’s judgment with respect to the 2010 obligation and its
award of damages to Traxys for that year.
V.
Concept’s final challenge is to the district court’s
award of prejudgment interest, attorneys' fees, and certain
witness-related litigation expenses. In light of our holding
that the district court erred in awarding damages related to a
2010 breach of contract, this judgment would necessarily be
vacated in order for the district court to reassess the matter
based on the modified damages award.
Because it is almost assuredly going to arise during
remand, we will briefly address Concept’s argument regarding the
district court’s interpretation of the Contract’s fee-shifting
provision. See United States ex rel. Drakeford v. Tuomey
Healthcare Sys., Inc., 675 F.3d 394, 406 (4th Cir. 2012) (“[O]ur
precedent is clear that we may address issues that are likely to
recur on remand.”). Concept asserts the district court erred
when it interpreted the Contract’s provision permitting Traxys
to recover “Legal Costs” as including attorneys' fees, expert
witness fees, and certain witness travel expenses. It maintains
that in light of New York case law holding that fee-shifting
provisions must be strictly interpreted, the district court
erred in construing “Legal Costs” to include these amounts when
15
it is not clear from the record that was the intention of the
parties.
We agree that the district court’s interpretation of
the fee-shifting provision was too broad. 6 Under New York law,
“while parties may agree that attorneys’ fees should be included
as another form of damages, such contracts must be strictly
construed to avoid inferring duties that the parties did not
intend to create.” Oscar Gruss & Son, Inc. v. Hollander, 337
F.3d 186, 199 (2d Cir. 2003). Moreover, courts must not “infer
a party’s intention to waive the benefit of the [American Rule]
unless the intention to do so is unmistakably clear from the
language of the promise.” Hooper Assocs., Ltd. v. AGS
Computers, Inc., 548 N.E.2d 903, 905 (N.Y. 1989).
The Contract’s fee-shifting provision provides that
Traxys can recover “Legal Costs.” (J.A. 779.) The term is
unmodified and undefined. Because legal costs could encompass
or exclude a range of fees associated with the underlying
litigation and the parties’ intent is not clear from the plain
language of the Contract, the term is ambiguous. We believe the
6
Although courts review the reasonableness of an attorneys'
fee award for abuse of discretion, we review the court’s
interpretation of the Contract – i.e., whether it permits
recovery of attorneys' fees and other costs – de novo. Oscar
Gruss & Son, Inc. v. Hollander, 337 F.3d 186, 198 (2d Cir.
2003).
16
analysis of U.S. Fid. and Guar. Co. v. Braspetro Oil Servs. Co.,
369 F.3d 34 (2d Cir. 2004), to be persuasive on this point.
There, the Second Circuit considered the precise issue presented
in this case: whether a provision allowing recovery of “legal
costs” encompassed attorneys' fees. After reviewing the
relevant New York case law and finding nothing directly on
point, the Second Circuit turned to three dictionary definitions
of “legal costs,” only one of which included “attorneys' fees.”
Id. at 74-77. 7 In the absence of any extrinsic evidence on
point, and faced with “two, equally valid interpretations” of
the provision, the Second Circuit concluded that “it [was] not
unmistakably clear that the use of the term ‘legal costs’ in
[the parties’ contract] was intended to obligate” the breaching
party to pay attorneys’ fees. Id. at 77. As such, no recovery
for attorneys' fees was permitted.
Similarly, here, the Contract calls for recovery of
“legal costs” without any clear indication of what that term
7
We note that Black’s Law Dictionary, one of the three that
the Second Circuit relied on, defines “cost” in three ways, none
of which are particularly useful in determining whether the
parties under the Contract intended for recovery of attorneys'
fees. Black’s Law Dictionary 349 (7th ed. 1999) (“1. The
amount paid or charged for something; price or expenditure. . .
. 2. (pl.) The charges or fees taxed by the court, such as
filing fees, jury fees, courthouse fees, and reporter fees. . .
. 3. (pl.) The expenses of litigation, prosecution, or other
legal transaction, esp. those allowed in favor of one party
against the other.”).
17
encompasses. Traxys points to a declaration in the record from
its employee Janet Billups, who drafted the Contract, in which
she indicates that she intended for the provision to include
attorneys' fees. However, this evidence is of limited value
given the uncertainty as to what both parties intended for it to
mean. Given that New York narrowly construes such fee-shifting
provisions, and requires that it must be “unmistakably clear
from the language of the promise,” Hooper Assocs., Ltd., 548
N.E.2d at 905, what the parties intended, we conclude that the
district court erred in interpreting the Contract to include
attorneys' fees.
The parties’ briefs focus on the appropriateness of
including attorneys' fees as “Legal Costs” even though Concept
also challenges the recovery of expert witness fees and witness
travel expenses. Although this is perhaps a closer call, it is
nonetheless a “call” given that the term used – “Legal Costs” –
is ambiguous. As such, we also hold that the district court
erred in concluding that the Contract was “unmistakably clear”
in intending to encompass such expert witness fees and travel
expenses. On remand, the district court should recalculate an
appropriate amount of prejudgment interest and permissible
“Legal Costs” to be allowed in conformity with this opinion.
18
VI.
For the aforementioned reasons, we affirm the district
court’s damages judgment in part and reverse it in part, and we
vacate and remand the judgment relating to prejudgment interest
and “Legal Costs” for further proceedings consistent with this
opinion.
AFFIRMED IN PART,
REVERSED IN PART,
VACATED AND REMANDED
19