United States District Court, E.D. Virginia, Richmond Division
JOHN A. GIBNEY, JR. UNITED STATES DISTRICT JUDGE.
Bransen Energy, Inc. ("Bransen") contracted with Virginia Electric and Power Company d/b/a Dominion Virginia Power ("Dominion") to provide coal for Dominion's newly constructed Virginia City Hybrid Energy Center ("VCHEC"). The sales agreements required that the coal meet specific standards necessary to test and open the new power plant: Bransen provided nonconforming coal. Dominion could not use the coal, rejected it, and suffered direct damages because of Bransen's breach. The Court will award Dominion damages of $20, 936, 688.
Dominion has sued Bransen for two breaches of contract. In its first claim. Dominion contends that in one phase of the transaction, Bransen provided '"coke breeze" instead of "run-of-mine" coal. The Court granted summary judgment to Dominion on the coke breeze claim, and awarded Dominion $1, 957, 325.00 in damages.
Second. Dominion says that Bransen's remaining coal, while not coke breeze, nevertheless did not meet the contractually mandated quality standards. The parties tried the second claim to the Court, and this opinion contains the Court's rulings from the trial.
II. FINDINGS OF FACT
The VCHEC is a new. environmentally friendly, and technologically sophisticated power plant. Before Dominion could bring the plant on line, it had to conduct tests, not only to make sure all the equipment worked, but also to satisfy various environmental permits issued by the Commonwealth of Virginia. Dominion contracted with Bransen to provide "performance" fuel-coal that met higher than normal standards for power plants.
Dominion entered four contracts related to the test and start-up phase of the plant-three of the agreements were with Bransen. First, Bransen and Dominion entered into a Master Coal Purchase and Sale Agreement ("the Master Agreement''). The Master Agreement governs all of the parties' subsequent transactions. It defines coal as "any and all of the Coal to be sold by [Bransen] and purchased by [Dominion], the quality of which conforms to the Specifications and which does not trigger [Dominion's] rejection rights under Section 5.2, or is otherwise accepted by [Dominion] ... [and] is substantially free from extraneous materials." (Am. Compl. Ex. 2 at 36.) Section 5.2 states that ''[Dominion] shall have the option, exercisable by notice to [Bransen] within two Business Days of [Dominion's] receipt of Proximate Analysis" to decline the shipment. (Id. at 12.) The provision adds that if Dominion does not give notice in two business days, it only loses rejection rights as to that particular shipment.
The "specifications" under the Master Agreement mean "the quality characteristics for the Coal ... on an as received basis, using ASTM [American Society for Testing and Materials] standards, specified in...the relevant Confirmation." (Id. at 33, internal quotations omitted.) As used by the parties in this case, a "confirmation" is the equivalent of a purchase order. Confirmations set forth specifications for the water content, size, extraneous materials, and British Thermal Unit per pound ("BTU per lb").
After the Master Agreement, the parties entered into a confirmation for the purchase of performance fuel (the "Pre-COD Confirmation"). Dominion agreed to purchase 450.000 tons of "run-of-mine" coal with an option to buy 150.000 more tons subject to Dominion's specifications on the quality of the coal. (Am. Compl. Ex. 3.) Although "nm-of-mine" coal sounds like some sort of middling product, Dominion imposed stringent requirements for the "performance fuel" testing of the plant. The Pre-COD Confirmation defines run-of-mine coal as "any and all of the coal to be sold by [Bransen] and purchased by [Dominion], the quality of which conforms to the Specifications set forth herein and which docs not trigger [Dominion's] rejection rights and which may contain limited amounts of extraneous material." (Id. at 2.) It also specifies that Dominion has the right to reject the product if the coal does not meet the quality thresholds.
Third, Dominion entered into a Land Lease Agreement ("Lease Agreement") with Coal Technology International. LLC ("CTI"), to lease property on which Dominion would stockpile the coal from Bransen before delivering it to the VCIIEC. Although Bransen is not a party to the Land Lease Agreement, Dominion and CTI expressly intertwined the Lease Agreement with the other contracts between Bransen and Dominion. The Lease Agreement would automatically terminate upon the expiration or termination of any pending Pre or Post-COD Confirmations or the Services Agreement. The Lease Agreement says that any coal remaining on the property after a post-termination removal period is deemed abandoned.
On the same day as the Pre-COD Confirmation, Bransen and Dominion entered into a Coal Services Agreement ("Services Agreement"). The Services Agreement governed the management and handling of the coal that Bransen delivered to Dominion, and required Bransen to provide a number of services, including sampling the product to make sure that it met the required specifications before Dominion transported it to the VCHEC. At Dominion's request, Bransen would move a portion of the coal at the leased property to a "ready pile" so that Dominion could transport that coal to the VCHEC. Dominion had the right to reject any ready pile if it did not conform to (he specifications defined in the Pre-COD Confirmation. To eliminate any doubt about the importance of meeting the specifications, the Services Agreement included the same specifications as the Pre-COD Confirmation. Viewed collectively, the contracts allowed Dominion to test any ready pile that Bransen produced and reject any ready pile that did not meet the specifications. In addition, the Services Agreement included express warranties that Bransen would provide services in a safe, professional, workmanlike manner and in accordance with the parties' contract and industry standards.
After Bransen began shipping coal to Dominion, the parties entered into two additional confirmations for the purchase of coal after the VCHEC started operation ("Post-COD Confirmations"). Under these agreements, Dominion intended to purchase up to three million tons of '"waste coal" from Bransen, with each confirmation having different quality specifications and price. Apparently, Dominion never ordered any coal from Bransen after the testing and start-up period.
Bransen delivered the product to Dominion at the leased property from February through December 2011, and Dominion paid for all the product delivered during that time. Va. Elec. &Power Co. v. Bransen Energy, Inc., No. 3:14-cv-538, 2015 WL 2061983, at *7. In mid-December, Dominion received a tip that Bransen had provided coke breeze,  product which Dominion could not process at the VCHEC. Id. After confirming that the product from Bransen contained coke breeze. Dominion retained an independent testing company to examine the coal in five ready piles. Tests occurred on two piles in January 2012 and on three piles in April 2013. Each of the piles failed to meet one or more of the contractual specifications for moisture and BTUs. In ...