VIRGINIA ELECTRIC AND POWER COMPANY, d/b/a Dominion Virginia Power, Plaintiff - Appellee,
BRANSEN ENERGY, INC., f/k/a Bransen Energy, LLC, Defendant-Appellant.
Argued: January 25, 2017
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.
Preston Burchett, SAM P. BURCHETT ATTORNEY AT LAW, Lexington,
Kentucky, for Appellant.
Benjamin L. Hatch, MCGUIREWOODS LLP, Norfolk, Virginia, for
Duncan Getchell, Jr., J. William Boland, Ryan D. Frei,
Katherine Mims Crocker, MCGUIREWOODS LLP, Richmond, Virginia,
GREGORY, Chief Judge, and THACKER and HARRIS, Circuit Judges.
THACKER, CIRCUIT JUDGE:
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.
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. 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.
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").
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"); 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"). 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.
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.
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.
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 Btu 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.
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.
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
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).