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Drummond Coal Sales, Inc. v. Norfolk Southern Railway Co.

United States District Court, W.D. Virginia, Roanoke Division

July 23, 2019



          Michael F. Urbanski, Chief United States District Judge

         This action arises out of a protracted contract dispute between plaintiff Drummond Coal Sales, Inc. ("Drummond") and defendant Norfolk Southern Railway Company ("Norfolk Southern") related to a 2006 contract ("C-9337") for rail transportation services from a terminal in Charleston, South Carolina to twenty-three (23) contractually specified coal-burning power plants in the southeastern United States. The parties resolved their initial dispute in 2010, agreeing to amend certain provisions of the contract and extend its terrm Drummond now seeks a declaration that its performance under C-9337, as amended, should be excused.

         The principal issue remaining in this case is the interplay between Drummond's contract with Norfolk Southern, i.e., C-9337 (as amended), and Norfolk Southern's confidential third-party contracts ("Destination Contracts") with various utility customers ("Utilities") that own and operate a specified list of power plants ("Destinations"). The terms of C-9337 required Drummond to ship a minimum volume of coal each year of the contract term and pay Norfolk Southern a shortfall fee if it failed to meet that guaranteed volume. In the present action, Drummond contends that Norfolk Southern's separate Destination Contracts precluded the Utilities from accepting coal on C-9337 without incurring liquidated damages, effectively eviscerating the value of C-9337 and depriving Drummond of the benefit of the bargain it struck with Norfolk Southern.

         Currently before the court are various motions in limine filed by the parties. These motions have been fully briefed and are ripe for decision. Upon consideration of the evidence and arguments presented by the parties, and for the reasons stated in open court and below, the court rules as follows:

         1. Drummond Coal Sales, Inc.'s Motion in Limine Number One Regarding the Interpretation and Operation of the Destination Contracts, ECF No. 210

         In its first motion in limine, Drummond requests the court either inform the jury of its various legal determinations (or, as variously described by Norfolk Southern, the court's "colloquial observations," "explanatory comments," and/or "generalizations") with respect to the interpretation and operation of the Destination Contracts[1], or permit Drummond to do so. Drummond contends that pertinent provisions of the Destination Contracts are unambiguous, and that because it is well settled that the interpretation of unambiguous contracts is a question of law, "[a]llowing the jury to draw their own conclusions regarding the interpretation or operation of the Destination Contracts would be error . . . ." ECF No. 210, at 4. Drummond cites multiple instances where Norfolk Southern conceded that the Destination Contracts are in fact unambiguous. See, e.g., ECF No. 139, at 3 ("The Contract and Destination Contracts speak for themselves, and their proper interpretation and application are matters for this Court."); ECF No. 186, at 16 ("The parties further agree that the terms and provisions of these contracts speak for themselves and are not ambiguous. In other words, the parties do not disagree on what these separate contracts say in terms of guaranteed minimums, liquidated damages, origins, rates or refunds relating to specific origins . . ."). In its opposition to Drummond's motion, Norfolk Southern reaffirmed that it has consistently maintained that the Destination Contracts are unambiguous and that the plain language of those contracts "speaks for itself." ECF No. 233, at 7.

         Notwithstanding the parties' apparent agreement that relevant provisions of the Destination Contracts are "unambiguous," they diverge as to what the jury should be told and by whom. Drummond contends that although the jury may be asked to determine whether Norfolk Southern's acts and omissions constitute a material breach of C-9337, it should not be asked to interpret the Destination Contracts. Drummond proposes that rather than requiring it to call witnesses to testify about and relitigate the meaning and/or operation of the Destination Contracts, the jury should be instructed by the court or informed by counsel regarding the same. Drummond expressed a willingness to work with counsel for Norfolk Southern on a joint stipulation to address this issue.

         Norfolk Southern, for its part, asserts that the jury is entitled to hear its witnesses "about the context in which these contracts arose" followed by "attorney argument about what it all means." ECF No. 262, at 11. Norfolk Southern further asserts that Drummond offers no analysis to support the procedural error it invites, Lil, that in a declaratory judgment case between two parties to a specific contract (C-9337), the court should instruct the jury about interlocutory legal rulings, made with respect to other contracts (Destination Contracts) between other parties (Norfolk Southern and the Utilities). ECF No. 233, at 3.

         To be sure, the Fourth Circuit and the Supreme Court of Virginia have consistendy held that the interpretation of an unambiguous contract is a question of law. See Frahm v. United States, 492 F.3d 258, 262 (4th Or. 2007) (citing Scarborough v. Ridgeway, 726 F.2d 132, 135 (4th Cir. 1984); see also City of Chesapeake v. States Self-Insurers Risk Retention Grp., Inc., 271 Va. 574, 578, 628 S.E.2d 539, 541 (2006) (citing Bendey Funding Group. L.L.C. v. SK & R Group. L.L.C., 269 Va. 315, 324, 609 S.E.2d 49, 53 (2005); Babcock & Wilcox Co. v. Areva NP. Inc., 292 Va. 165, 178, 788 S.E.2d 237, 243 (2016) ("The interpretation and construction of a written contract present only questions of law, within the province of the court, and not of the jury or other trier of fact as long as the contract is unambiguous, and the intent of the parties can be determined from the face of the agreement."); Foreign Mission Bd. of S. Baptist Convention v. Wade, 242 Va. 234, 238, 409 S.E.2d 144, 146 (1991) (holding that the trial court improperly submitted the question of the interpretation of the contract to the jury); see also Va. Model Jury Instructions Civil No. 45.190, Commentary ("Ordinarily, the construction of a written contract is a matter for the court alone. If the terms of the contract are clear and unambiguous, the court alone must construe the contract. In such a case, it is improper to submit the contract to the jury for interpretation" (citations omitted)); cf. Donnert v. Feld Entm't, Inc., 612 Fed.Appx. 657, 661 (4th Cir. 2015) (holding that where a party presents a plausible alternative interpretation of a contract provision, that party is entitled to have the meaning of the provision submitted to the jury for resolution).

         Neither Drummond nor Norfolk Southern contend that the Destination Contracts at issue are ambiguous. In general terms, these Destination Contracts impose minimum volume commitments which Drummond argues breach Article 13 of C-9337, either expressly or under the covenant of good faith and fair dealing, because Drummond was unable to use the rates it bargained for in C-9337, resulting in the shortfall fees. Thus, the jury is not going to be called upon to interpret these provisions of the Destination Contracts. Instead, their task will be to determine whether the existence of these Destination Contracts constituted a material first breach of Article 13 of C-9337, relieving Drummond from having to pay shortfall fees. Under the circumstances, the court does not believe it to be appropriate or necessary to preliminarily instruct the jury, as Drummond suggests, on the operation of the Destination Contracts. The fact that these Destination Contracts imposed minimum volume requirements is plain.

         The question to be resolved, that of the operation and impact of the minimum volume provisions of the Destination Contracts on Drummond's ability to perform under C-9337, is not one of law, but of fact, requiring the marshaling of evidence and argument. This does not call for contract interpretation requiring a preliminary instruction from the court. As such, Drummond's motion to have the court instruct the jury on the operation of the Destination Contracts is DENIED.

         2. Drummond Coal Sales, Inc.'s Motion in Limine Number Two Regarding Parol Evidence Relating to the Destination Contracts, ECF No. 211

         In its second motion in limine, Drummond moves to preclude Norfolk Southern from offering evidence or advancing arguments that contradict unambiguous language contained in the Destination Contracts. Specifically, Drummond moves to prevent Norfolk Southern from claiming, through the deposition testimony of its Rule 30(b)(6) corporate designee, David Lawson, that "as a practical matter," "it would have counted"[2] shipments under C-9337 toward the minimum volume requirements of the Utilities. Lawson's testimony, distilled to its essence, appears to suggest that had any Utility contacted Norfolk Southern and expressed a desire to ship coal under C-9337, it would have granted that request and counted any such shipment toward the Utility's volume commitment. See ECF No. 234-1, at 10 ("Well, I'm telling you as a matter of practical course if the ton had moved, Southern Company would have said to us, [t]hat's a ton that moved in here. It qualifies. We would have said, yeah, absolutely."); see also ECF No. 158, at 7 ("... as a practical matter, if any Utility had contacted Norfolk Southern and indicated a desire to purchase Drummond coal under the Contract, Norfolk Southern absolutely would have counted any such shipment toward the minimum volume commitment in the Utility's Destination Contract").

         Drummond asserts that the unambiguous language of the Destination Contracts does not allow shipments under C-9337 to count toward the Utilities' minimum volume requirements, and Norfolk Southern should not be permitted to claim otherwise after the fact. Drummond asserts that Lawson's statements concerning this "hypothetical scenario" are speculative, self-serving, and contrary to express terms of the Destination Contracts, as well as plainly violative of the parol evidence rule. Drummond further asserts that to allow Norfolk Southern to "retroactively and unilaterally" amend unambiguous contractual provisions that are detrimental to its position in later litigation would undermine the parol evidence rule and nonsensically allow defendants in breach of contract cases to "offer up speculative hypotheticals about what they purportedly 'would have' done notwithstanding the plain language of a contract in order to excuse their breach." ECF No. 211, at 3.

         Norfolk Southern first argues that because the parol evidence rule applies only to statements that were made "prior to or contemporaneous with the contract at issue," and because the deposition statements in question occurred long after C-9337 was executed, the parol evidence rule is inapposite. Norfolk Southern also argues that Lawson, as a corporate designee, is permitted to testify about Norfolk Southern's "knowledge, perceptions, and opinions," and how Norfolk Southern would have handled a request that Drummond coal count toward a Utility's shipping minimum represents an "opinion" of the corporation. See ECF No. 234, at 3-4 (citing United States v. Taylor, 166 F.R.D. 356, 361 (M.D.N.C), aff'd, 166 F.R.D. 367 (M.D. N.C. 1996) (holding that a corporate designee may "present[] the corporation's 'position' on [a given] topic," and "testify about its subjective beliefs and opinions")).

         Irrespective of whether Lawson's statements are barred by the parol evidence rule, insofar as they relate to what Norfolk Southern "would have" done had a Utility hypothetically approached it with a desire to ship coal under C-9337, they are plainly speculative and, as such, inadmissible. Rule 30(b)(6) states in pertinent part that:

[a] party may in the party's notice and in a subpoena name as the deponent a public or private Corporation . . . and describe with reasonable particularity the matters on which examination is requested. In that event, the organization so named shall designate one or more officers, directors, or managing agents, or other persons who consent to testify on its behalf, and may set forth, for each person designated, the matters on which the person will testify . . . The persons so designated shall testify as to matters known or reasonably available to the organization.

Fed. R. Civ. P. 30(b)(6). In short, testimony elicited at the Rule 30(b)(6) deposition represents the knowledge of the corporation, not of the individual deponents. The designated witness, therefore, is "speaking for the corporation," and this testimony must be distinguished from that of a "mere corporate employee" whose deposition is not considered that of the corporation and whose presence must be obtained by subpoena. 8A Wright, Miller & Marcus § 2103, at 36-37.

         In United States v. Taylor. 166 F.R.D. 356 (M.D.N.C), aff'd, 166 F.R.D. 367 (M.D. N.C. 1996), the court summarized a designee's role: "[t]he designee, in essence, represents the corporation just as an individual represents him or herself at a deposition." Id. at 361: Martin v. Bimbo Foods Bakeries Distribution. LLC. 313 F.RD. 1, 8-9 (E.D. N.C. 2016) (stating that "[a] deposition of a deponent in his individual capacity differs from that of a deponent as a corporate representative" in that a corporate designee "speaks as the corporation and testifies regarding the knowledge, perceptions, and opinions of the corporation"). While a corporate designee is permitted to testify based on facts within the corporate entity's collective knowledge, rather than only on the basis of the individual's direct personal knowledge, he or she is otherwise bound by the same evidentiary rules that apply to lay witnesses (unless designated as an expert, which is not the case here, see ECF No. 208, at 2). See Brazos River Auth. v. GE Ionics. Inc., 469 F.3d 416, 434 (5th Cir. 2006) (holding that a Rule 30(b)(6) designee may testify "beyond matters personally known to the designee or to matters in which the designee was not personally involved," including "subjective beliefs and opinions," "provided the testimony is otherwise permissible lay testimony"); see also ISG Insolvency Grp., Inc. v. Meritage Homes Corp., No. 2:11-CV-01364-PMP. 2013 WL 3043681. at *4 (D. Nev. June 17, 2013), aff'd sub nom. Dev. Specialists. Inc. v. Meritage Homes Corp., 621 Fed.Appx. 434 (9th Cir. 2015) (same).

         Generally, lay witness testimony is only admissible if it is "rationally based on the perception of the witness." Fed.R.Evid. 701. In Sempra Energy v. Marsh USA. Inc., No. CV0705431SJOJCX, 2008 WL 11335050, at *14 (CD. Cal. Oct. 15, 2008), the court held:

Given this requirement, an individual testifying as a lay witness generally cannot answer hypothetical questions because speculative testimony about what "might have happened" or what a witness "would have done under different circumstances cannot possibly be based on the witness's perception." See Evanston Bank v. Brink's Inc., 853 F.2d 512, 515 (7th Cir. 1988); Am. Gen. Life Ins. Comp. v. Schoenthal Family, L.L.C., 248 F.R.D. 298, 305 (N.D.Ga. 2008); Athridge v. Aetna Casualty & Surety Co., 474 F.Supp.2d 102, 105 (D. D.C. 2007) (internal citations omitted) (finding that lay witnesses could not testify as to what they would have done if they had been home on the day of the accident because such testimony was "purely speculative" but could testify on other issues based on personal knowledge, such as whether they generally allowed unlicensed, underage family members to use their vehicle). [Instead], the ability to answer hypothetical questions is the essential difference between expert and lay testimony. United States v. Henderson, 409 F.3d 1293, 1300 (11th Cir. 2005) (internal citations omitted). Nevertheless, lay witnesses can testify regarding the lay witness's "particularized knowledge ... by virtue of his or her position in a particular business." Am. Gen. Life Ins. Comp., 248 F.R.D. at 305...

Id. While Lawson's testimony need not be based on "personal knowledge" per se given the relaxed knowledge requirement afforded corporate designees, it still must be based on information within the corporate knowledge of the organization. In Sempra Energy, the court held that a lay witness cannot testify about whether he believes the plaintiff corporation, Sempra Energy, "would have" been able obtain an insurance policy had it hypothetically applied for one despite his "personal knowledge and experience" working for the insurance provider because testimony about what "would have" happened under circumstances that never came to pass is speculative. Id. at *13.

         The rationale for barring testimony about what "would have" happened in the hypothetical situation at issue in Sempa Energy applies with equal force to Lawson's testimony despite his status as a corporate designee. Indeed, just as a lay witness cannot possess "personal knowledge" about what "would have" occurred in a hypothetical situation, neither can Lawson possess corporate knowledge about what precisely "would have" happened if, hypothetically, a Utility had approached Norfolk Southern with a request to count coal shipped under C-9337, without engaging in speculation. This is especially so given that, as far as C-9337 is concerned, no Utility appears to have ever approached Norfolk Southern with such a request.

         This finding is consistent with the handful of cases holding that corporate designees are generally not allowed to provide opinion testimony based on hypothetical situations. See Firefighters' Ret. Sys. v. Citco Grp. Ltd., No. CV 13-373-SDD-EWD, 2018 WL 2158769, at *5 n.32 (M.D. La. May 10, 2018) (collecting cases); Edwards v. Scripps Media. Inc., No. CV 18-10735, 2019 WL 1647803 (E.D. Mich. Apr. 16, 2019) (holding that hypothetical questions are not appropriate for deposition of corporation's designee since deponent would have to answer with personal opinion rather than corporate position); Byrd v. Wal-Mart Transp., LLC, No. CV609-014, 2009 WL 3055303, at *3 (S.D. Ga. Sept. 23, 2009) (finding that hypothetical questions are never appropriate for a Rule 30(b)(6) depositions); Consumer Fin. Prot. Bureau v. Borders & Borders. PLC, 2016 WL 9460471, *8 (W.D. Ky. June 29, 2016) (rejecting topics that were irrelevant and "entirely hypothetical"); MCI Telecommunications Corp. v. Wanzer, 897 F.2d 703, 706 (4th Cir. 1990) (noting the distinction between opinion testimony based on "personal knowledge" and opinion testimony based on "hypothetical facts" (citation omitted)).

         Drummond does not dispute that Norfolk Southern may offer testimony and other evidence about what it has actually done under similar circumstances in the past, and from such testimony, it "could try to suggest to the jury the ultimate hypothetical that their witness testified to." ECF No. 263, at 17. Drummonds asserts, however, that Norfolk Southern appears intent to go one step further by asking Lawson to opine as to the application of past practices in the present case. For the reasons stated above, the court finds that such testimony would veer into inadmissible speculation. Neither of the cases cited by Norfolk Southern compel a different result. See ECF Np. 234, at 2-3 (citing Int'l Org, of Masters. Mates & Pilots, Atl. & Gulf Region, AFL-CIO v. Coal Terminal Towing Corp., No. 83-446-N, 1984 WL 49133 (E.D. Va. Mar. 30, 1984) and Amos v. Coffey. 228 Va. 88, 320 S.E.2d 335 (1984)).

         In Int'l Org, of Masters. Mates & Pilots. Atl. & Gulf Region. AFL-CIO v. Coal Terminal Towing Corp., No. 83-446-N, 1984 WL 49133 (E.D. Va. Mar. 30, 1984), the court simply held that because the parol evidence rule does not apply to "subsequent acts" or "conduct" by the parties, courts may examine a course of performance to determine if the "clear meaning of the words" at issue was later "limited in any way." Id. at *6. Norfolk Southern does not point to any subsequent acts or conduct between parties in this case of the sort at issue before the court in Int'l Org, of Masters, which, notably, went on to hold that the defendant could have changed the meaning of the term at issue by "inserting appropriate language to clarify the alleged true intention," but because it chose not to do so, it "cannot be heard at this point during litigation to say that the plain words do not mean what diey say." Id. at *4. In Amos v. Coffey, 228 Va. 88, 320 S.E.2d 335 (1984), the Supreme Court of Virginia, although noting that the parol evidence rule concerns "prior or contemporaneous" statements, nevertheless affirmed a lower court's refusal to admit testimony which, much like the testimony offered by Lawson, "tended to vary and contradict the intention of the parties" as expressed in an "unambiguous and unconditional" deed. Id. at 94, 320 S.E.2d at 338.

         In sum, because Lawson's testimony regarding how Norfolk Southern "would have" handled a request from a Utility to count coal shipped under C-9337 is speculative, it is inadmissible, and Drummond's motion is GRANTED to this extent. Norfolk Southern may, however, offer evidence as to how it has responded historically to similar requests from other customers.

         3. Drummond Coal Sales, Inc.'s Motion in Limine Number Three Regarding the Parties' Prior Lawsuit, Settlement Agreement and Negotiations, ECF No. 212 & Drummond Coal Sales, Inc.'s Motion in Limine Number Six Regarding Other Litigation, ECF No. 215

         In its third and sixth motions in limine, Drummond moves to preclude Norfolk Southern from referencing, discussing, or offering evidence of prior litigation, settlement agreements, and/or settlement negotiations in the cases styled Norfolk Southern Railway Company, Inc. v. Drummond Coal Sales. Inc., 7:08-cv-340 (W.D. Va.), and Drummond Coal Sales. Inc. v. Kinder Morgan Operating LP "C", 2:16-cv-345 (N.D. Ala.).


         In its third motion in limine, Drummond moves to preclude Norfolk Southern from referencing the parties' prior litigation and settlement in the case styled Norfolk Southern Railway Company, Inc. v. Drummond Coal Sales, Inc., 7:08-cv-340 (W.D. Va.), in a manner that portrays it as unduly litigious and/or a "serial litigant" whose claims should be discredited. ECF No. 263, at 20. Drummond claims that Norfolk Southern "clearly wishes to argue to the jury that it should disregard Drummond's claims because [it] is a serial litigant, looking for any way to escape its obligations under C-9337." ECF No. 254, at 5. Drummond stated at oral argument that it is not concerned that counsel might "hint" at the existence of prior litigation, but that Norfolk Southern will incense the jury by attempting to portray it, in the words of counsel for Norfolk Southern, as "using litigation as an extension of its commercial practices" or as a "business tool to renegotiate or get out of this contract." ECF No. 263, at 37-38.

         Drummond requests that references to and evidence of Norfolk Southern Railway Company. Inc. v. Drummond Coal Sales, Inc., 7:08-cv-340 (W.D. Va.), be excluded because such evidence is irrelevant under Rule 401, and its probative value is substantially outweighed by the potential prejudice under Rule 403 of the Federal Rules of Evidence. Specifically, Drummond claims that because Norfolk Southern's acts and omissions that form the basis of its prior material breach claim occurred after the parties executed their settlement in 2009, evidence of the parties' prior litigation and/or settlement agreement, and related theories, claims, and defenses, is inadmissible because it has no bearing on whether Norfolk Southern committed a material breach after the settlement of that prior litigation. ECF No. 254, at 5. Drummond further asserts that such evidence is inadmissible under Rule 408, which, broadly speaking, limits the admission of statements or conduct intended to be part of compromise or setdement negotiations. Fed.R.Evid. 408.

         Norfolk Southern contends that the court should allow the introduction of evidence pertaining to Norfolk Southern Railway Company, Inc. v. Drummond Coal Sales. Inc., 7:08-cv-340 (W.D. Va.), because it provides "irreplaceable factual context for the present lawsuit" and is crucial in elucidating the "history of the parties' relationship." ECF No. 263, at 30. Norfolk Southern further contends that Rule 408 does not bar evidence that prior litigation occurred; rather it bars the use of settlement-related evidence to "prove or disprove the validity or amount of a disputed claim" or to "impeach by a prior inconsistent statement or a contradiction." Fed.R.Evid. 408.

         With respect to relevancy, Norfolk Southern's argument is twofold. First, Norfolk Southern notes that it is for a purported breach of C-9337, the terms of which were amended pursuant to the 2009 settlement agreement, that Drummond is presently suing on, and restricting its ability to introduce evidence of the settlement agreement would prevent the jury from receiving the "whole story." ECF No. 263, at 22-23. Second, Norfolk Southern claims that because Drummond has specifically alleged a breach of the covenant of good faith and fair dealing, evidence of the parties' "business relationship," which includes the circumstances surrounding the settlement of its prior litigation, would assist the jury in (1) interpreting C-9337, (2) determining the "intent" of the parties, and (3) making an informed finding as to whether Norfolk Southern materially breached its good faith obligations by entering into the Destination Contracts. In short, Norfolk Southern argues that the evidence in question would provide the jury with "much-needed context and factual background when interpreting the C-9337 and attempting to ascertain the parties' intent." ECF No. 235, at 6.

         It was evident at the court's hearing that despite talking past one another in their respective briefs, the parties agree that some references to and evidence of the underlying facts that ultimately resulted in the late-2009 settlement and amendment of C-9337 may be admissible at trial insofar as such evidence is relevant and not otherwise barred by Rule 408. Given that it is not at all clear what "evidence" is precisely at issue or how it will be used, the court cannot rule definitively on its relevancy and admissibility. Certain issues and facts related to the dispute that formed the basis for the 2009 settlement are relevant in contextualizing the present dispute between the parties. See, e.g., Franke v. Tig Ins. Co., No. 13-CV-13432-DT, 2015 WL 5697597, at *3 (E.D. Mich. Sept. 29, 2015) (holding that "[a]lthough evidence of past litigation and settlements is to be excluded," it would be unfairly prejudicial to plaintiff to exclude any mention of the underlying facts resulting in the past litigation and settlements"). Drummond appeared to concede as much at oral argument. ECF No. 263, at 33 ("[T]here can be discussion that the parties got into a dispute about [shortfall fees], ultimately resolved that dispute with an amended contract."); Id. at 31 ("I'm not concerned . . . about [Norfolk Southern] talking about the history of the parties, there was an original contract and there's an amended contract, and there was some course of dealing leading up to the amended contract . . . [a]ll of those are factual. . . [t]hey can talk about that"). Drummond asks only to preclude Norfolk Southern from perseverating about and overelaborating the existence of prior ...

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