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

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

September 4, 2019

DRUMMOND COAL SALES, INC., Plaintiff,
v.
NORFOLK SOUTHERN RAILWAY COMPANY, Defendant.

          MEMORANDUM OPINION

          Michael F. Urbanski, Chief United States District Judge

         The matter presently before the court is Norfolk Southern Railroad Company's ("Norfolk Southern") motion for clarification, ECF No. 274, of the court's ruling on its third motion in limine, ECF No. 220, to exclude evidence relating to transportation contracts entered into prior to the execution of a January 2010 mutual release between it and Drummond Coal Sales, Inc. ("Drummond"). Norfolk Southern seeks clarification of two aspects of the court's July 22, 2019 memorandum opinion, ECF No. 267, granting in part and denying in part its motion, namely: (1) "[w]hether the [c]ourt's ruling with respect to C-9290 excludes evidence and argument relating to rates that were unchanged by post-release amendments"; and (2) "[w]hether the [c]ourt's ruling with respect to C-9290 excludes evidence and argument relating to volume commitments that were unchanged by post-release amendments." ECF No. 274, at 1.

         I.

         In its original motion in limine, ECF No. 220, Norfolk Southern' asserted that the mutual release executed by and between the parties in January 2010 in the course of settling Norfolk Southern Railway Company v. Drummond Coal Sales. Inc., No. 7:08cv340 (W.D. Va.), barred certain claims and the introduction of any evidence associated with Destination Contracts that could have been brought in that prior action.[1] The release in question, executed on January 14, 2010, states, in relevant part, that Drummond releases Norfolk Southern:

from all claims, demands, debts, causes of action, or obligations of any kind whatsoever, known or unknown, arising or accruing from the beginning of time to the Effective Date of this mutual release, and arising out of the formation or performance of the Contract, including but not limited to all claims, defenses or avoidances made or asserted in the Action, and all claims, defenses or avoidances that could have been made or asserted in the Action.

ECF No. 249 (Ex. B). Norfolk Southern asserted that the mutual release should be construed to preclude Drummond from introducing evidence or testimony related to the rates and minimum volume commitments set forth in three Destination Contracts: (1) C-9290, (2) C- 7545, and (3) C-9289. The present motion concerns only C-9290, which was executed on July 1, 2009, and subsequently amended at least four times after the execution of the mutual release in January 2010: Amendment 1, ECF No. 132-31, at 25 (executed February 24, 2010); Amendment 2, Id. at 12 (executed July 1, 2011); Amendment 3, Id. at 9 (executed February 26, 2013); and Amendment 4, Id. at 2 (effective January 1, 2014) (hereinafter, collectively, "Amendments").

         A.

         With respect to C-9290, the question presented in Norfolk Southern's third motion in limine was whether the parties' mutual release operated as a waiver of all claims connected with C-9290 and, relatedly, Dmmmond's right to introduce evidence of this Destination Contract in support of its prior material breach claim under C-9337. Drummond argued that because the aforementioned Amendments pertain to rail rates, minimum volume requirements, and liquidated damages provisions in C-9290, as well as postdate the January 2010 release, they supply it with new bases for claims under C-9337 which fall outside the scope of the release. Norfolk Southern argued that the post-release Amendments do not give rise to new claims because all the ostensibly new "claims" existed under and related back to the original terms of C-9290, and could have, but were not, brought in the prior action. ECF No. 221, at 4. Norfolk Southern averred that at all times since the effective date of C-9290, "the relevant contractual terms have been the same." Id.

         In its July 22, 2019 memorandum opinion, ECF No. 267, the court first noted that there is little doubt that any claim and/or cause of action arising or accruing prior to the parties' execution of the mutual release in January 2010 is barred by the express terms of the release. The court also noted, however, that it is equally clear that the release only applies to "claims, demands, debts, causes of action, or obligations" which existed prior to the effective date of the mutual release. In other words, the release was held not to be a prospective waiver of the right to sue for subsequent violations of C-9337 which occurred after January 14, 2010. The court, relying on the Richfood, Inc. v. Jennings, 255 Va. 588, 499 S.E.2d 272 (1998) and Noell Crane Sys. GmbH v. Noell Crane & Serv., Inc., 677 F.Supp.2d 852 (E.D. Va. 2009), observed that the "execution of subsequent amendments after the release date modifying and/or reimposing the volume requirement and liquidated damages provision [to C-9290] constitutes discrete post-release conduct for which a new, albeit substantively similar, claim potentially exists." ECF No. 267, at 47.[2] The court noted that "unlike in Noell Crane, this is a case where alleged post-release claims arose out of post-release conduct," and as such, "C-9290 may be relied upon to the extent the terms of die amendments only form the basis of Drummond's claims." ECF No. 267, at 47. In its discussion of C-7545, die court also held that certain post-release conduct, such as the extension of a contract, which was clearly provided for in a self-executing term contained in the original contract, does not provide grounds for a post-release claim.

         In C-7545, for example, § 3, die durational clause, states that die "term of this Agreement shall be extended for up to two (2) consecutive additional five (5) year periods without additional action by either [p]arty . . . ." Given that § 3 of C-7545 provides for future extensions of C-7545, a post-release amendment merely memorializing such an extension provided for in the original contract would not give rise to a post-release claim under the broad language of die mutual release. In its motion for clarification, Norfolk Southern asserts that as with a hypothetical extension of C-7545 pursuant to § 3 of that contract, the rate changes in die post-release Amendments to C-9290 "merely reflected die previously existing rates as escalated pursuant to [C-9290's] original terms." ECF No. 275, at 2. For this reason, Norfolk Southern asserts that the "putative" rate changes represent changes of "form rather than substance," and therefore do not alter the underlying payment obligation provided for in the original terms of C-9290. To illustrate its argument further, Norfolk Southern provided the following hypodietical. Norfolk Southern states that if a hypothetical transportation contract were to provide for a base rate of $100 in year one, to be escalated annually by 10%, then the rate after year five would be $181.55. Thus, if the parties were to replace - in year five - the contract's original rate provision of "$100 in year one, to be escalated annually by 10%" with a rate provision that provided for a rate of $181.55, there would be no change to the contract's original rate because the substantive payment obligation of the contracting party remains the same. Norfolk Southern asserts that "[t]his is precisely what happened with the post-release amendments to C-9290 as they relate to the relevant Shipyard [River] Terminal [('SRT')] rates."

         Norfolk Southern notes that pursuant to the Adjustment Clause of Article 14 in C-9290, the base rates found in Appendix A are adjusted quarterly based upon an index published by the Association of American Railroads, plus a 5% increase after the adjustments of July 1, 2010, 2013, and 2016.[3] Norfolk Southern asserts that although the base rates listed in Amendment 4 for shipments from SRT to Roxboro and Mayo ($28.38 for rapid trainload and $29.62 for all others) appear higher than the base rates for such shipments listed in Amendment 2 ($23.17 for rapid trainload and $24.17 for all others), the Amendment 4 rates merely represent the rates that would have otherwise been in effect at the time of the amendment, pursuant to the Article 14 escalation provision calling for quarterly adjustments.

         Norfolk Southern also notes that although Amendment 2 purported to replace all the base rates in C-9290, it left unchanged the original, pre-release base rates for shipments from the SRT to Roxboro and Mayo.[4] Norfolk Southern further notes that the only distinction between the manner in which the original base rates were reflected in Amendment 2 and in Amendment 4 is that the text of Amendment 2 contained the applicable escalation language[5], whereas Amendment 4 "baked the same escalation language and calculations into the numbers themselves shown [in] the Appendices." ECF No. 275, at 3. In sum, Norfolk Southern claims that neither Amendment 2 nor Amendment 4 altered the base rates from the SRT to Roxboro and Mayo that would have otherwise been in effect, and as such, Drummond has failed to allege any wrongful conduct with respect to those rates that occurred after the date of the mutual release. Norfolk Southern argues that evidence of these rates, therefore, should be excluded under Richfood. Inc. v. Jennings, 255 Va. 588, 499 S.E.2d 272 (1998).

         In Richfood, the Supreme Court of Virginia provided that post-release claims must be based upon post-release conduct:

The alleged wrongful conduct giving rise to the claim now asserted by Richfood and Market Insurance against Jennings and Dembinski did not transpire before the execution of the Agreement. It may well be that Richfood and Market Insurance, as well as Dembinski and Jennings, knew that there would be a premium refund from the workers' compensation insurance carrier. However, in the present action, Richfood and Market Insurance allege that Jennings and Dembinski wrongfully retained that refund. This alleged conduct by Jennings and Dembinski occurred after Richfood initially received the refund check in May 1995, long after the parties executed ...

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