Buffalo Coal Company, Inc. et al v. The Virginia Electric and Power Company, Inc. et a

UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
IN RE: 	)
)
BUFFALO COAL COMPANY, INC., 	) 	Case No. 06-bk-00366
)
Debtor. 	) 	Chapter 7
____________________________________ 	)
)
)
JOHN W. TEITZ, AS TRUSTEE OF THE 	)
ESTATE OF BUFFALO COAL 	)
COMPANY, INC., 	)
)
Plaintiff, 	)
)
v. 	) 	Adv. Proc. No. 08-ap-00038
)
VIRGINIA ELECTRIC AND POWER 	)
COMPANY, d/b/a DOMINION 	)
VIRGINIA POWER, 	)
)
Defendant. 	)
____________________________________ 	)
MEMORANDUM OPINION
Dominion Virginia Power (“DVP”) seeks summary judgment on an adversary complaint
filed by John W. Teitz (the “Trustee”), as chapter 7 trustee for the estate of Buffalo Coal
Company, Inc. (the “Debtor”), for breach of contract and indemnity arising from DVP’s pre-
petition termination of a coal supply agreement between DVP and the Debtor.
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Dated: Wednesday, September 30, 2009 2:01:25 PM
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In the alternative, DVP requests entry of partial summary judgment declaring that the
coal supply agreement provides the exclusive remedies for breach, and consequently, DVP
cannot be held liable for other damages1 the Debtor may have sustained as a result of DVP’s
alleged breach of the agreement.
For the reasons stated herein, the court will grant in part and deny in part DVP’s motion
for summary judgment. The court will deny entry of summary judgment on the issue of whether
DVP breached the coal supply agreement. 	The court will grant summary judgment to DVP on
the Trustee’s claim for indemnity and the extent of damages available under the coal supply
agreement’s provision regarding the limitations of liability.
I. STANDARD OF REVIEW
Summary judgment is appropriate when the matters presented to the court “show that
there is no genuine issue as to any material fact and that the moving party is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(c); Fed. R. Bankr. P. 7056; Celotex v. Catrett, 477 U.S.
317, 322 (1986). The party moving for summary judgment has the initial burden of proving that
there is no genuine issue as to any material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 161
(1970). Once the moving party has met this initial burden of proof, the non-moving party must
set forth specific facts sufficient to raise a genuine issue for trial and may not rest on its
pleadings or mere assertions of disputed facts to defeat the motion. 	Matsushita Electric
Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (stating that the party
opposing the motion “must do more than simply show that there is some metaphysical doubt as
to the material facts”). The mere existence of a scintilla of evidence in support of the opposing
party's position will not be sufficient to forestall summary judgment, but “the judge's function is
not himself to weigh the evidence and determine the truth of the matter but to determine whether
there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986).
In ruling on a motion for summary judgment, “the evidence of the nonmovant is to be
believed, and all justifiable inferences are to be drawn in his favor.” Id. at 255. 	A fact is not
1For example, the Trustee contends that, as a result of DVP’s alleged wrongful termination, the
Debtor incurred substantial environmental liabilities. The Trustee seeks to recover the costs of
these liabilities based on the agreement’s indemnity provision.
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“genuinely disputed” unless the factual conflict between the parties requires a trial of the case for
resolution. Finley v. Giacobbe, 79 F.3d 1285, 1291 (2d Cir. 1996) (“If there is any evidence in
the record from which a jury could draw a reasonable inference in favor of the non-moving party
on a material fact, this Court will find summary judgment is improper.”).
II. BACKGROUND
DVP operates the “Mount Storm Power Station” (“Mt. Storm”) in Grant County, West
Virginia. The Debtor’s coal mining operation is in close proximity to Mt. Storm, and the Debtor
supplied it with coal for the two decades before it filed bankruptcy. 	Throughout the Debtor’s
relationship with DVP, coal was supplied pursuant to direct contracts with DVP, or under
subcontracts, including an agreement with PBS Coals, Inc. (“PBS”) who purchased the Debtor’s
coal to fulfill its own supply obligations to DVP. The current dispute follows a renegotiation of
a January 2002 coal supply contract directly between the Debtor and DVP (the “2002 Supply
Agreement”).
A. The Debtor’s Cash-Flow Problems
In the first quarter of 2004, the Debtor was not operating profitably under its coal supply
agreements with DVP and PBS, and it notified DVP of its financial difficulties. By May 2005,
the Debtor faced $7.2 million in accounts payable, 40% of which were over 90 days past due.
The Debtor had also fallen short on its supply obligations to DVP and PBS.
On May 11, 2005, DVP executed a Letter Agreement that modified the terms of the 2002
Supply Agreement (the “First Letter Agreement”). 	The First Letter Agreement increased the
price of coal per ton on a portion of the supply required in the 2002 Supply Agreement and
provided for DVP to pay $1.5 million to the Debtor as an advanced payment on the price
increase. 	In 	July 	2005, 	DVP 	executed 	another 	Letter 	Agreement 	(the 	“Second 	Letter
Agreement”) that provided another short-term price increase. 	Despite execution of the Letter
Agreements, DVP continued to demand performance from PBS, which, in turn, required the
Debtor to continue to supply coal to Mt. Storm at a lower price than the prices provided in the
Letter Agreements. 	Thus, the Letter Agreements notwithstanding, the Debtor’s financial
condition worsened.
B. Renegotiation
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Although from 2004 to 2005 the Debtor’s short-run financial outlook was bleak, some
developments made restructuring a viable option. 	Beginning in 2003, the Debtor sought to
obtain a new permit (the “C-1 North Permit”) that would allow it to expand mining operations
and production levels. By August 2005, the Debtor expected the C-1 North Permit to be issued
in November 2005.
The Debtor hired George Brikis to investigate its financial restructuring in conjunction
with the anticipated issuance of the C-1 North Permit. 	As a result of his investigation, Brikis
recommended a target price that the Debtor should obtain per ton of coal. Thus, in August 2005,
the Debtor decided to approach DVP in negotiating a long-term modification of the 2002 Supply
Agreement, along with the First and Second Letter Agreements. With an increase in price on the
DVP contract and an expansion in production at the C-1 North Permit area, the Debtor hoped to
stave off collections from its creditors, secure new financing, and achieve positive cash flow.
The Debtor and DVP were able to reach an agreement on a new contract price per ton of
coal close to what Brikis had recommended. 	DVP demanded, however, that the Debtor’s
affiliates guarantee its performance and that any new agreement would be conditioned upon the
Debtor acknowledging approximately $34 million in liabilities for its shortfalls under the 2002
Supply Agreement.
On October 20, 2005, DVP sent to the Debtor a Settlement Agreement, under which the
Debtor agreed to acknowledge a $34 million debt under the 2002 Supply Agreement. 	In turn,
DVP agreed to withhold collection on the debt. 	The forbearance agreement was conditioned
upon the Debtor’s adequate performance under a new supply agreement. On October 25, 2005,
DVP, the Debtor and the Debtor’s guarantors executed the new coal supply agreement (the
“2005 Supply Agreement) and the Settlement Agreement as proposed by DVP.
C. Early Termination Provisions
The 2005 Supply Agreement included termination provisions that were not included in
the 2002 Supply Agreement.
Article 9 is titled, “Events of Default, Early Termination and Limitation of Liability.”
Under Article 9.1(d), an Event of Default occurs when the “Defaulting Party shall be subject to a
Bankruptcy Proceeding.” “Bankruptcy Proceeding” is defined to mean:
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a Party or entity (1) makes an assignment or any general arrangement for the
benefit of creditors, (2) files a petition or otherwise commences, authorizes or
acquiesces in the commencement of a proceeding or cause of action under any
bankruptcy or similar law for the protection of creditors, (3) has such a petition
filed 	against 	it, 	(4) 	otherwise 	becomes 	bankrupt 	or 	insolvent 	(however
evidenced), (5) has a liquidator, administrator, receiver, trustee, conservator or
similar official appointed with respect to it or any substantial portion of its
property or assets, or (6) is unable to pay its debts as they fall due.
(Doc. No. 197, App. 35, Article 1.1(c).)
Once an Event of Default occurs, the Non-Defaulting Party may “accelerate and liquidate
the Parties’ respective obligations by establishing, and notifying the Defaulting Party of an Early
Termination Date . . . on which [the] Agreement shall terminate . . . and/or . . . withhold any
payments due to the Defaulting Party until such Event of Default is cured.” (Doc. No. 197, App.
35, Article 9.2(a).)
Acceleration 	and 	liquidation 	of 	the 	parties’ 	obligations 	is 	accomplished 	through
calculating a “Termination Payment.” (Doc. No. 197, App. 35, Article 9.3.) The Non-Defaulting
Party must notify the Defaulting Party as to which Party owes the net Termination Payment.
Within two business days of receiving an invoice containing the calculation of the Termination
Payment, Article 9.2(c) requires either payment or a response explaining the Defaulting Party’s
dispute with the calculation of the Termination Payment. 	(Doc. No. 197, App. 35, Article
9.2(c).)
The right to receive the termination payment “shall be without prejudice and in addition
to any right of setoff, combination of accounts, lien or other right to which any Party is at any
time otherwise entitled (whether by operation of law, contract or otherwise).” 	(Doc. No. 197,
App. 35, Article 9.3(d).) The 2005 Supply Agreement also contains the following “Limitation of
Liability” statement:
THE 	PARTIES 	CONFIRM 	THAT 	THE 	EXPRESS 	REMEDIES 	AND
MEASURES OF DAMAGES PROVIDED IN THIS AGREEMENT SATISFY
THE 	ESSENTIAL 	PURPOSES 	HEREOF. 	FOR 	BREACH 	OF 	ANY
PROVISION FOR WHICH AN EXPRESS REMEDY OR MEASURE OF
DAMAGES 	IS 	HEREIN 	PROVIDED, 	SUCH 	EXPRESS 	REMEDY 	OR
MEASURE 	OF 	DAMAGES 	SHALL 	BE 	THE 	SOLE 	AND 	EXLUSIVE
REMEDY, THE LIABLE PARTY’S LIABILITY SHALL BE LIMITED AS SET
FORTH 	IN 	SUCH 	PROVISION, 	AND 	ALL 	OTHER 	REMEDIES 	OR
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DAMAGES AT LAW OR IN EQUITY ARE WAIVED UNLESS OTHERWISE
PROVIDED IN THIS AGREEMENT. 	IF NO REMEDY OR MEASURE OF
DAMAGES IS EXPRESSLY HEREIN PROVIDED, THE LIABLE PARTY’S
LIABILITY SHALL BE LIMITED TO DIRECT ACTUAL DAMAGES ONLY,
SUCH 	DIRECT 	ACTUAL 	DAMAGES 	SHALL 	BE 	THE 	SOLE 	AND
EXCLUSIVE REMEDY AND ALL OTHER REMEDIES OR DAMAGES AT
LAW OR IN EQUITY ARE WAIVED. 	EXCEPT AS MAY BE PROVIDED
FOR IN SECTION 9.6, NEITHER PARTY SHALL BE LIABLE TO THE
OTHER FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY
OR 	INDIRECT 	DAMAGES, 	LOST 	PROFITS, 	OR 	OTHER 	BUSINESS
INTERRUPTION DAMAGES, WHETHER BY STATUTE, IN TORT OR IN
CONTRACT, UNDER THIS AGREEMENT, ANY TRANSACTION, ANY
INDEMNITY PROVISION OR OTHERWISE.
C. Continued Cash-Flow Problems
After execution of the 2005 Supply Agreement, the Debtor still had cash flow problems
and its principals reported to DVP that it would need an additional advance of $2.2 million.
DVP denied the request, but agreed to accelerate payment terms to cash on delivery.
Nevertheless, by February 2006, at least one of its secured creditors had disabled some of the
Debtor’s equipment based on the Debtor’s non-payment.
The Trustee asserts that during a phone conference attended by DVP and the Debtor’s
principals in early February 2006, a DVP official, Karla Haislip, suggested that the Debtor
should file for bankruptcy and “DVP could do some things to help.” 	(Doc. No. 197, App. 1 ¶
63.) 	The Debtor sent Mr. Brikis to DVP’s offices to discuss the details of Ms. Haislip’s
suggestion.
At the meeting, DVP requested that Mr. Brikis send an email summarizing the meeting.
On February 20, 2009, Mr. Brikis, with approval from the Debtor’s President, Charles R.
Howdershelt, sent an email to Ms. Haislip (the “Brikis Email”), which outlines “what Buffalo []
propos[ed] as a role for Dominion/Vepco in the company’s Ch. 11 reorganization plan.” (Doc.
No. 197, App. 43.) The email describes various credit facilities to be provided by DVP and lists
available collateral. 	The email also states that DVP would need to increase the price it was
paying for the Debtor’s Coal. The email concludes that the Debtor is considering reorganizing in
chapter 11:
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Time is of the essence. Buffalo must identify a DIP provider within the next few
weeks due to inadequate liquidity.
The company will be approaching a few other potential “strategic”
providers (likely to be competitors). While the company’s preference is to work
with Dominion/Vepco, they do not have the luxury of waiting very long for an
answer. If you have an interest in this concept/DIP role (I think by doing so you
will gain some input/control over the ultimate outcome), please advise Buffalo in
writing by February 28. 	A commitment would have to be in place shortly
thereafter.
(Doc. No. 197, App. 43.)
D. Contract Termination
Two days after receiving the Brikis Email, on February 22, 2006, Ms. Haislip faxed to
the Debtor a letter terminating the 2005 Supply Agreement (the “Termination Letter”) based on
the Debtor’s insolvency. 	The letter asserted that an Event of Default had occurred, provided
notice that DVP intended to accelerate the liquidated damages as provided under Article 9.2(a),
and terminated DVP’s forbearance obligation under the Settlement Agreement. On February 24,
2006, the Debtor ceased its coal mining operations.
On March 3, 2006, Jeffrey G. Miscikowski, a DVP officer, faxed to the Debtor a letter
with an invoice setting a liquidated Termination Payment at $56,370,521 and demanding
payment within two days. Mr. Miscikowski’s letter also demanded payment of the $32,038,095
indebtedness under the Settlement Agreement, which DVP asserts became due on the Debtor’s
default of the 2005 Supply Agreement.
On March 7, 2006, an attorney for the Debtor responded to DVP’s termination notice and
liquidated damages demand. 	The letter disputes DVP’s Termination Payment calculation and
whether an event of default had occurred as of February 23, 2006. 	The letter also asserts that
DVP’s withholding of payment constituted an event of default, and provided DVP with three
days to cure the default.
On March 9, 2006, DVP filed a complaint in the United States District Court for the
Eastern District of Virginia against the Debtor and its guarantors. The complaint sought breach
of contract damages and payment on guarantees of $88,408,616 under the 2005 Supply
Agreement and the Settlement Agreement.
E. Litigation in Bankruptcy Court
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On May 5, 2006, the Debtor filed a bankruptcy petition under Chapter 11, staying DVP’s
complaint. 	In turn, DVP filed its proof of claim in the bankruptcy case for $88,408,616 in
contractual damages. On June 13, 2007, the Debtor’s bankruptcy case was converted to Chapter
7.
On May 1, 2008, the Trustee filed this complaint against DVP objecting to its proofs of
claim and asserting three grounds for damages. 	Count I alleges that DVP breached the 2005
Supply Agreement when it repudiated the agreement by letter on February 22, 2006 without a
prior written demand for performance. Count II asserts that DVP is obligated to indemnify the
Debtor against the environmental reclamation liabilities to state agencies and all other claims the
Debtor became subject to as a result of DVP’s termination. Count III asserts that termination of
the 2005 Supply Agreement constitutes a breach of the Settlement Agreement.
III. DISCUSSION2
On summary judgment, DVP seeks a declaration that it validly terminated the 2005
Supply Agreement, and, thus, could not have breached the contract. 	In the alternative, should
the court refuse to grant summary judgment in its favor on that basis, DVP seeks to narrow the
issues at trial by obtaining a declaration that the 2005 Supply Agreement excludes consequential
damages, and the Agreement’s indemnification provision does not encompass any consequential
damages, and, even if it did, any demand under that provision is time-barred.
A. DVP’s Termination of the 2005 Supply Agreement
DVP asserts, among other things, that its termination of the 2005 Supply Agreement was
authorized by the terms of the contract on the grounds that the Debtor was insolvent, which is
listed as an “Event of Default.”
i. Meaning of “Bankruptcy Proceeding” as an “Event of Default”
In DVP’s view, the Debtor triggered an Event of Default in that the Debtor was insolvent
at the time DVP terminated the 2005 Supply Agreement, and, thus, DVP could not have been in
breach when it acted in compliance with the contract’s termination provisions.
2 In an earlier proceeding in the Debtor’s bankruptcy case, the court found that Virginia law
governs the 2005 Supply Agreement. In re Buffalo Coal Company, Inc., No. 06-bk-366, (Doc.
No. 72.). Thus, the court will apply Virginia law to the contract dispute in this proceeding.
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The Trustee asserts that the 2005 Supply Agreement’s termination provision is patently
ambiguous in that more than one meaning of the termination provision is permissible. 	The
termination provision states:
9.1 Events of Default
An Event of Default (“Event of Default”) with respect to a Party (the “Defaulting
Party”) shall mean any of the following:
. . . .
(d) the Defaulting Party shall be subject to a Bankruptcy Proceeding . . . .
(Doc. No. 197, App. 35, Article 9.1.) 	The term, “Bankruptcy Proceeding,” is defined under
Article 1.1(c) as follows:
Bankruptcy Proceeding – Shall mean with respect to a Party or entity, such Party
or entity (1) makes an assignment or any general arrangement for the benefit of
creditors, (2) filed a petition or otherwise commences, authorizes or acquiesces in
the commencement of a proceeding or cause of action under any bankruptcy or
similar law for the protection of creditors, (3) has such a petition filed against it,
(4) otherwise becomes bankrupt or insolvent (however evidenced), (5) has a
liquidator, 	administrator, 	receiver, 	trustee, 	conservator 	or 	similar 	official
appointed with respect to it or any substantial portion of its property or assets, or
(6) is unable to pay its debts as they fall due.
(Doc. No. 197, App. 35, Article 1.1(c).)
In considering disputed contractual language, the court must “determine the parties'
intention, which should be ascertained, whenever possible, from the language the parties
employed in the contract.” Va. Elec. & Power Co. v. Norfolk S. Ry. Co., 2009 Va. LEXIS 83, at
*20, ___ S.E. 2d ___ (Va. 2009). “Whether contractual provisions are ambiguous is a question
of law and not of fact. . . .” Nextel WIP Lease Corporation v. Saunders, 666 S.E.2d 317, 320
(Va. 2008).
“A contractual term, absent a definition in the contract, is construed according to its
usual, ordinary, and popular meaning.” Palmer & Palmer Co., L.L.C. v. Waterfront Marine
Costr., Inc., 662 S.E.2d 77, 81 (Va. 2008).
An ambiguity exists when either “the contract's language is of doubtful import, is
susceptible of being understood in more than one way or of having more than one meaning, or
refers to two or more things at the same time.” Va. Elec. & Power Co. v. Norfolk S. Ry. Co., at
*23. 	Even if multiple possible meanings are not conflicting, “the language of a contract is not
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clear and unambiguous, and resort to extrinsic evidence is necessary, if the situation is such that
fair-minded men might reasonably draw different conclusions” as to the meaning of the contract.
Geoghegan Sons & Co., Inc. v. Arbuckle Brothers, 123 S.E. 387, 389 (Va. 1924).
A “patent” ambiguity arises where “the language of the contract itself reveals that it can
be interpreted in more than one way. . . . ,” whereas a latent ambiguity arises “where language
while appearing perfectly clear at the time the contract [is] formed, because of subsequently
discovered or developed facts, may reasonably be interpreted in either of two ways.” Va. Elec. &
Power Co. at *23-*24 (internal quotations omitted).
Once it is determined that a contractual provision is unambiguous, it is the duty of the
court, then, to construe the contract terms according to their plain meaning without resort to
extrinsic evidence. Bentley Funding Group, L.L.C. v. SK& R Group, L.L.C., 609 S.E.2d 49 (Va.
2005). “The guiding light in construction of a contract is the intention of the parties as expressed
by them in the words they have used, and courts are bound to say that the parties intended what
the written instrument plainly declares.” Palmer & Palmer Co., 662 S.E.2d at 80.
In the Trustee’s view, Article 9.1(d) could mean, on one hand, that a bankruptcy petition
under title 11 is necessary to trigger an Event of Default, and, on the other hand, that something
less than a bankruptcy petition is sufficient.
The court rejects the Trustee’s argument that 9.1(d) could mean that only a bankruptcy
petition is a “Bankruptcy Proceeding” as that term is defined in Article 1.1(c). “Bankruptcy
Proceeding” is a defined term. 	The language of Article 9.1(d) uses the term Bankruptcy
Proceeding to stand in proxy for a list of six alternatives – only one of which is the filing of a
bankruptcy petition. To allow Article 9.1(d) to mean that a bankruptcy petition is necessary for
an Event of Default would require the reader to ignore alternatives (1), and (3) through (6), in
construing the definition of Bankruptcy Proceeding. The Trustee’s argument to the contrary is at
odds with the plain language of the contract.
Instead, the conditions for triggering an Event of Default under Article 9.1(d) are clear
and unambiguous according to the contractual definition of “Bankruptcy Proceeding” under
Article 1.1(c).
ii. The Debtor’s “Insolvency”
Even conceding that the Event of Default for “Bankruptcy Proceeding” includes more
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than the filing of a bankruptcy petition, the Trustee asserts that DVP did not have sufficient
evidence of such an Event of Default upon which to base its termination of the 2005 Supply
Agreement.
Article 1.1(c)(4) provides as a definition for Bankruptcy Proceeding, “such Party or
entity . . . (4) otherwise becomes bankrupt or insolvent (however evidenced).” 	“Insolvent”
means: “. . . having liabilities that exceed the value of assets; having stopped paying debts in the
ordinary course of business or being unable to pay them as they fall due.” 	Black’s Law
Dictionary 812 (8th ed. 2004). Subsection 1.1(c)(6) reinforces the fact that a Party’s inability to
pay its debts as they fall due is a Bankruptcy Proceeding for purposes of an Event of Default
under Article 9.1(d).
To prove the Debtor’s insolvency, DVP relies upon the following statement made by the
Trustee during discovery:
It is also the Trustee’s understanding that, in light of the terms of the 2005
Settlement Agreement, the Debtor’s assets were less than its liabilities in October
2005 and in February 2006. It is also the Trustee’s understanding that in October
2005 and in February 2006, the Debtor was unable to pay debts when due, but
that it was a going concern and its creditors were willing to work with it regarding
the terms and timing of payment of its debts.
(Doc. No. 139, Ex. 6 at 6.)
DVP also relies upon the following testimony by the Debtor’s Vice President, Gerald
Ramsburg:
Q: And do you agree that the contract with Dominion permitted Dominion
to terminate that contract if you were either insolvent or couldn’t pay your debts
as they fell due?
A: (MR. RAMSBURG) That’s the broad terminology that was inserted
into the last contract, yes, sir.
Q: And in the termination letter that Dominion delivered on February 22,
Dominion stated that one of the grounds for termination was that you were
insolvent and you were not paying your debts – were not able to pay your debts as
they came due, correct.
A: (MR. RAMSBURG) Yes, sir. But they – we were in the same shape on
February 22nd as we were when [KPMG] did all their studies of us. 	So, you
know, prior to signing the contract.
Q: That’s not the question. The question is on February 22 you were not
able to pay your debts as they fell due, correct?
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A: (MR. RAMSBURG) I’ve said in ‘05 we weren’t paying our debts as
they fell due.
Q: And on February 22nd, 2006, also, correct?
A: (MR. RAMSBURG) Yes.
(Doc. No. 139, Ex. 4, Part 2 at 13.)
DVP asserts that the sworn statements confirm that the Debtor had become insolvent,
thus, triggering an Event of Default under Article 9.7(d) as defined under subsections 1.1(c)(4)
and (6).
The Trustee, however, asserts that his answer to DVP’s discovery request does not
“conclusively establish that Ms. Haislip’s February 22, 2006 termination letter is justified.”
Instead, the Trustee, points to the following additional language included in his response:
It is also the Trustee’s understanding that in October 2005 and in February 2006,
the Debtor was unable to pay debts when due, but that it was a going concern and
its creditors were willing to work with it regarding the terms and timing of
payment of its debts.
The Trustee’s statement and Ramsburg’s testimony establish that the Debtor had
liabilities greater than its assets and that the Debtor was unable to pay its debts as they became
due, which satisfies the “insolvency” Event of Default in the 2005 Supply Agreement. The
willingness of the Debtor’s creditors to workout payment plans for the Debtor is immaterial to
determining the Debtor’s solvency.
B. Trustee’s Theories Excusing Conditions for Early Termination
Even if DVP had grounds to terminate the 2005 Supply Agreement, the Trustee argues
that DVP waived that right and/or is estopped from terminating the Agreement.
i. Waiver
The Trustee argues that even if the contract allows termination upon a party’s insolvency,
DVP waived its right to Early Termination under Article 9.2.
Under Virginia law, waiver excuses the enforcement of an otherwise valid contractual
right. “‘Waiver is the voluntary, intentional abandonment of a known legal right, advantage, or
privilege.’” Weidman v. Babcock, 400 S.E.2d 164, 167 (Va. 1991) (quoting Fox v. Deese, 362
S.E.2d 699, 707 (Va. 1987)). The elements of waiver are: “knowledge of the facts basic to the
exercise of the right and the intent to relinquish that right.” Id. “[W]aiver must be express, or, if
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it is to be implied, [the intention to waive a right] must be established by clear and convincing
evidence.” Baumann v. Capozio, 611 S.E.2d 597, 600 (Va. 2005) (internal quotes omitted).
“The essence of waiver is voluntary choice.” May v. Martin, 137 S.E.2d 860, 865 (Va. 1964)).
In asserting waiver, the Trustee incorporates a list of factual statements along with the
conclusion that DVP “manifested an intent to waive the ‘insolvency’ provision.” 	From the
Trustee’s list of facts, the court can decipher no direct support for the assertion that DVP
manifested an express intent to relinquish its right to terminate. 	The Trustee invites the court,
however, to imply DVP’s intent from the following facts: 1) DVP had knowledge of the
Debtor’s financial condition before executing the 2005 Supply Agreement; 2) DVP accepted
performance with knowledge of the Debtor’s insolvency; 3) DVP negotiated with the Debtor’s
other creditors to allow the Debtor time to perform under the new contract; 4) DVP altered the
payment terms of the 2005 Supply Agreement to benefit the Debtor; and 5) DVP lobbied for the
approval of the Debtor’s C-1 North Permit.
In short, under the Trustee’s argument, DVP knew that it had the right to terminate the
2005 Supply Agreement for insolvency at the moment the contract was executed. 	The Trustee
then argues that DVP waived its right by continuing to accept performance under the contract
and by making accommodations to the Debtor so that the Debtor would believe that its ongoing
insolvency would not trigger an Event of Default.
In contrast, DVP asserts that in granting accommodations to the Debtor, DVP only
wanted the parties to receive the benefit of the bargain under the 2005 Supply Agreement. DVP
asserts that none of the Trustee’s facts can show that DVP intended to relinquish its contractual
rights to terminate the contract.
The court cannot determine, absent weighing the evidence at trial, whether DVP
knowingly relinquished its right to terminate by making accommodations to the Debtor after it
was aware of the Event of Default. If DVP waived its termination rights, then the Debtor would
be excused from liability based upon a breach triggered by an Event of Default under the
contract, and DVP would be barred from asserting the Debtor’s insolvency as a defense to the
Trustee’s complaint for breach of contract. 	DVP’s intent to relinquish a known right is a key
element of waiver, and, thus, a material fact in determining whether DVP properly terminated
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the contract. Therefore, summary judgment must be denied as to the Trustee’s claim for breach
of contract.
ii. Equitable Estoppel
The Trustee also asserts that DVP should be equitably estopped from relying on the
Debtor’s insolvency as an Event of Default on the grounds that DVP assisted the Debtor in its
attempt to restructure financially. 3
For DVP to be equitably estopped from relying upon the Early Termination provisions to
defend against the Trustee’s complaint for breach of contract, the Trustee will need to show the
following elements of equitable estoppel “by clear, precise, and unequivocal evidence:”
(1) A material fact was falsely represented or concealed; (2) The representation or
concealment was made with knowledge of the facts; (3) The party to whom the
representation was made was ignorant of the truth of the matter; (4) The
representation was made with the intention that the other party should act upon it;
(5) The other party was induced to act upon it; and (6) The party claiming
estoppel was misled to his injury.
Moorman v. Blackstock, Inc., 661 S.E.2d 404, 411 (Va. 2008).
The Trustee argues that DVP is estopped from relying on the Debtor’s inability to pay
debts and its general insolvency as an Event of Default. 	The Trustee presents the court with
affidavits and deposition testimony to suggest that DVP exhorted the Debtor to continue to
invest capital and continue with mining operations even though DVP knew that the Debtor was
unable to pay its debts since the first moment the 2005 Supply Agreement was executed. 	For
example, the Trustee argues that under the circumstances, DVP’s conduct constitutes false
3 DVP assert’s that equitable estoppel is inapplicable on the grounds that Virginia law does not
recognize a cause of action for equitable estoppel, and, further, that the Trustee failed to plead
estoppel properly. Here, however, the Trustee has not asserted estoppel as a “cause of action,”
but rather, the Trustee included equitable estoppel as an affirmative defense to DVP’s
counterclaims for breach of contract. “A party cannot be called on to show his estoppel until his
adversary has attempted to use the improper defense.” 7A Michie’s Jurisprudence of Va. & W.
Va., Estoppel § 38 (citing Davis v. Thomas, 32 Va. (5 Leigh) 1 (1834)). Until DVP asserted its
grounds for Early Termination as an affirmative defense in its answer to the Trustee’s cause of
action for breach of contract, the Trustee could not raise his estoppel arguments. No responsive
pleading to DVP’s affirmative defense was required. Thus, the Trustee’s equitable estoppel
arguments are properly raised on summary judgment.
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representations that the Debtor relied upon in changing its position. 	DVP, on the other hand,
presents deposition testimony from the Debtor’s Vice President, Gerald Ramsburg, that he knew
of no false statements made by DVP.
It is reasonable to infer from the Trustee’s evidence on summary judgment that DVP’s
course of conduct, not only its affirmative statements, mislead the Debtor. 	Drawing all
reasonable inferences in favor of the non-movant, the court finds that a genuine issue of material
fact exists regarding whether DVP is equitably estopped from asserting the Debtor’s general
insolvency or inability to pay debts as an Event of Default.
C. Article 9.7 – “Limitation of Liability”
DVP argues that Article 9.7 of the 2005 Supply Agreement precludes the damages sought
in the Trustee’s complaint, and argues that Article 9.7 provides the parties’ exclusive remedies.
Article 9 is titled: “Events of Default, Early Termination and Limitation of Liability.”
Article 9.2 gives the Parties the right to terminate the contract early upon an Event of Default.
Article 9.3 provides a remedy to the Parties for early termination in the form of a Termination
Payment, which can result in a net amount owed to either the “non-defaulting” party or the party
who triggered the Event of Default. While the Termination Payment is a remedy for an Event of
Default, subsection 9.3(d) provides, in part, as follows:
The remedy provided for in this Article shall be without prejudice and in addition
to any right of setoff, combination of accounts, lien or other right to which any
Party is at any time otherwise entitled (whether by operation of law, contract or
otherwise).
Article 9.7 is a five-sentence paragraph describing “Limitation of Liability.” According
to the second sentence in Article 9.7, if the agreement contains an “express remedy” for breach,
then the express remedy is the “SOLE AND EXCLUSIVE” remedy. 	The fourth sentence of
Article 9.7 provides:
. 	. 	. 	NEITHER 	PARTY 	SHALL 	BE 	LIABLE 	TO 	THE 	OTHER 	FOR
CONSEQUENTIAL, 	INCIDENTAL, 	PUNITIVE, 	EXEMPLARY 	OR
INDIRECT 	DAMAGES, 	LOST 	PROFITS, 	OR 	OTHER 	BUSINESS
INTERRUPTION DAMAGES, WHETHER BY STATUTE, IN TORT OR IN
CONTRACT, UNDER THIS AGREEMENT, ANY TRANSACTION, ANY
INDEMNITY PROVISION OR OTHERWISE.
The Trustee’s complaint asserts that DVP’s early termination constituted a breach of
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contract. Wrongful early termination is an “Event of Default” under Article 9.1(c) (“. . . failure .
. . to comply with any material obligation under this Agreement. . . .”). 	Because Article 9.3
provides an express remedy for any Event of Default listed in Article 9.1, the remedy set forth in
Article 9.3 is the sole and exclusive remedy according to the second sentence of Article 9.7.
Moreover, because the savings clause in Article 9.3 allows the parties to seek, in addition to the
Termination Payment, “any . . . other right to which any Party is at any time otherwise entitled . .
. .,” the set of available remedies turns out to be very broad even under the limitation set forth in
the second sentence of Article 9.7.
Nevertheless, regardless of how broadly the parties’ available remedies are described in
Articles 9.3, the fourth sentence of Article 9.7 specifically excludes “consequential, incidental,
punitive, exemplary or indirect damages, lost profits, or other business interruption damages,”
even if such damages are provided elsewhere in the written agreement.
Therefore, according to the fourth sentence of Article 9.7, the Trustee’s breach of
contract damages against DVP cannot include “consequential, incidental, punitive, exemplary or
indirect damages, lost profits, or other business interruption damages.”
i. Limitation of Liability Provisions are Unambiguous
The Trustee argues that the limitation of liability provisions of Article 9 are ambiguous.
In particular, the Trustee finds that Article 9.3(d) and 9.7 are in conflict. In the Trustee’s view,
the preservation of “any right” under Article 9.3(d) in addition to a Termination Payment
contradicts the third and fourth sentences of Article 9.7, which limit recovery to “direct actual
damages.”
The court disagrees. Article 9 does not have two different meanings by virtue of the fact
that it preserves all remedies on the one hand, under Article 9.3(d), but limits liability on those
remedies, on the other hand, under Article 9.7. 	The court finds that the limitation of liability
provisions are clear and unambiguous.
ii. Damages for Breach of Contract Under Virginia Law
Article 9.7 utilizes the terms “direct” and “consequential” in describing damages.
Because the 2005 Supply Agreement is a contract for the sale of goods, Virginia’s Uniform
Commercial 	Code 	governs 	the 	contract. 	Under 	Virginia’s 	commercial 	law, 	direct 	and
consequential are terms of art, and, thus, the court must interpret the 2005 Supply Agreement
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according to their specialized meaning under Virginia law. The Supreme Court of Virginia uses
the following common law definitions for direct and consequential damages:
There are two broad categories of damages ex contractu: direct (or general)
damages and consequential (or special) damages. 	Direct damages are those
which arise “naturally” or “ordinarily” from a breach of contract; they are
damages which, in the ordinary course of human experience, can be expected to
result from a breach. Consequential damages are those which arise from the
intervention of “special circumstances” not ordinarily predictable. If damages are
determined to be direct, they are compensable. If damages are determined to be
consequential, they are compensable only if it is determined that the special
circumstances were within the “contemplation” of both contracting parties.
Blue Stone Land Co. v. Neff, 526 S.E.2d 517, 518-519 (Va. 2000); see also Va. Code Ann. §
8.1A-305(b) (“. . . neither consequential or special damages . . . may be had except as
specifically provided in the Uniform Commercial Code or by other rule of law.”). 	Put another
way, direct damages must “flow directly and immediately . . from the . . . breach.” Pulte Home
Corp. v. Parex, Inc., 579 S.E.2d 188, 193 (Va. 2003). 	If “a detour is required to get from [a]
breach . . . to . . . damages, those damages cannot be considered as direct but consequential.” Id.
“Whether damages are direct or consequential is a question of law.” Neff, 526 S.E.2d at 519.
Here, the Trustee asserts that DVP’s breach of contract caused the following damages:
loss of profit, incidental damages, environmental reclamation obligations to state agencies, and
liability for breach of contract with third-parties. 	Incidental damages and loss of profit are
expressly excluded under Article 9.7, thus it is only necessary to determine whether reclamation
obligations and third-party breach liabilities are excluded by Article 9.7.
Environmental reclamation damages do not, in the ordinary course of human experience,
follow directly and immediately from the breach of a contract for the sale of goods. 	While the
parties may have understood that the Debtor’s entire business, as well as its ability to keep up
with operating costs such as environmental obligations, depended almost exclusively on its
ability to sell coal to the Mt. Storm plant, such an understanding is a “special circumstance” that
is not ordinarily predictable in the sale of goods. Further, the environmental liabilities facing the
Debtor are several consequences removed from DVP’s termination. The Debtor defaulted on its
environmental obligations not because of DVP’s termination, but, rather, on account of its own
business failure. The Debtor’s business failure may have been in part due to DVP’s termination,
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but even business failure is generally considered a consequential damage from a breach of
contract. See, e.g., Conneaut Metalcasters v. Emco Wheaton, Inc. (In re Conneaut Metalcasters),
Nos. 96-3417 & 96-3460, 1997 U.S. App. LEXIS 23780 (6th Cir. Sept. 5, 1997) (“The
destruction of a seller's business does not arise naturally, in the usual course of things, upon a
breach of a contract to purchase goods by a buyer.”).
Thus, the Trustee’s claim for environmental reclamation damages is a claim for
consequential damages, which are excluded by the plain language of Article 9.7.
iii. Limitation of Damages Available Under Va. Code Ann. § 8.2-708
The Trustee asserts that because DVP’s wrongful termination repudiated the contract,
DVP is subject to the damages set forth under Va. Code Ann. § 8.2-708, which provides that a
seller of goods may recover either the difference between market and the contract price plus
incidental damages, or lost profits plus incidental damages. 	The Trustee’s argument, however,
ignores Va. Code Ann. § 8.2-719(1)(a), which provides that “the agreement . . . may limit or
alter the measure of damages recoverable under this title . . . .” 	Here, the contract clearly and
unambiguously excludes consequential damages and incidental damages. Pursuant to Va. Code
Ann. § 8.2-719(1)(a), the Debtor limited the measure of damages it could seek under § 8.2-708
by agreeing to Article 9 of the 2005 Supply Agreement.
iv. Unconscionable Limitation of Consequential Damages
The Trustee argues that a material issue of fact exists as to whether the exclusion of
consequential damages under Article 9.7 is unconscionable. Under Va. Code Ann. § 8.2-719(3),
[c]onsequential damages may be limited or excluded unless the limitation or
exclusion is unconscionable. Limitation of consequential damages for injury to
the person in the case of consumer goods is prima facie unconscionable but
limitation of damages where the loss is commercial is not.
“The essence of unconscionability in this context is ‘an absence of meaningful choice on
the part of one of the parties together with contract terms which are unreasonably favorable to
the other party.’” Belvins v. New Holland North America, Inc., 97 F. Supp. 2d 747, 749 (W.D.
Va. 2000) (interpreting Va. Code Ann. § 8.2-719(3)) (quoting Carlson v. General Motors Corp.,
883 F.2d 287, 294 (4th Cir. 1989). One-sided contracts are substantively unconscionable, while
“disparity of choice and bargaining power” show procedural unconscionability. 	Myrtle Beach
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Pipeline Corp. et al. v. Emerson Elec. Co., 843 F. Supp. 1027, 1046 n.10 (D.S.C. 1993).
In determining whether a party had a meaningful choice the Fourth Circuit applies the
following factors: “(1) the nature of the injuries suffered by the plaintiff; (2) whether the plaintiff
is a substantial business concern; (3) disparity in the parties’ bargaining power; (4) the parties’
relative sophistication; (5) whether there is an element of surprise in the exclusion; and (6) the
conspicuousness of the clause.” Myrtle Beach Pipeline, 843 F. Supp. at 1046 (quoting Kaplan v.
RCA Corp., 783 F.2d 463, 467 (4th Cir. 1986)) (internal quotation marks omitted); see also,
Carlson, 883 F.2d at 293.
First, it is undisputed that the Trustee’s asserted damages are commercial in nature, rather
than for personal injuries. Where the contract results in an exclusion of mere commercial losses,
“the cause for sustaining the exclusion of consequential damages is far greater.” Myrtle Beach
Pipeline., 843 F. Supp. at 1046.
Second, at the time of signing the contract, the Debtor was a substantial business concern
that had dealt on equal footing with DVP in negotiating coal supply agreements for many years,
and, thus, could “amply police its own bargains.” See id. (“. . .[U]nconscionability rarely exists
unless the buyer is a consumer.”).
Third, there existed no disparity in bargaining power. The Trustee highlights the fact that
the Debtor had no choice but to agree to DVP’s terms on a take-it-or-leave-it basis or face
current liabilities that would force the Debtor out of business. At the same time, however, it is
undisputed that the Debtor was DVP’s major supplier of coal to Mt. Storm, and DVP faced the
ripe possibility that its executory contract with the Debtor could be terminated in bankruptcy if
the Debtor’s current liabilities were not restructured. 	The bargain was precarious for both
parties. 	Thus, despite the Debtor’s financial condition as of October 25, 2008, the Trustee has
failed to show that the two parties were in disparate bargaining positions at the time the damages
exclusion was agreed upon.
Fourth, it is undisputed that the parties were sophisticated and employed lawyers to
counsel them regarding the terms of the 2005 Supply Agreement.
Fifth, there was no element of surprise regarding the inclusion of Article 9. 	It is
undisputed that the Debtor’s principals had several days to read the agreement and the assistance
of legal counsel in interpreting the language of the agreement before they signed. (Doc. No. 139,
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Ex. 4 at 14.)
Finally, the damages exclusion provision is conspicuous. Article 9.7 is devoted entirely
to defining, in capitalized font no less, the details of liability limitations. 	The 2002 Supply
Agreement contained no similar Article, thus, the new addition would have been an obvious
change from the old contract terms.
The Trustee has also failed to present evidence to support his conclusion that the
consequential damages exclusion is substantively unfair. 	The Trustee has not disputed that the
exclusion applies equally to DVP and to the Debtor. 	Thus, DVP has no advantage over the
Debtor in the exclusion of consequential damages.
While 	unconscionability 	requires 	a 	fact-intensive 	review 	of 	the 	circumstances
surrounding the bargain, the Trustee has not disputed any fact that is material to the question of
whether the consequential damages exclusion in this case is unconscionable. 	Therefore, on
summary judgment, the court finds that the clear and unambiguous exclusion of consequential
damages contained in Article 9.7 precludes the Trustee from recovering from DVP the Debtor’s
third-party breach liabilities and environmental reclamation liabilities.
v. Failure of Essential Purpose under Va. Code Ann. § 8.2-719(2)
As an alternative to unconscionability, the Trustee asserts that the consequential damages
exclusion is abrogated by Va. Code Ann. § 8.2-719(2), in which it is provided that “[w]here
circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may
be had as provided in this act.”
However, the Supreme Court of Virginia held in Envirotech Corp. v. Halco Engineering,
Inc., 364 S.E.2d 215, 220 (Va. 1988), that “an exclusion of consequential damages survives a
finding that a limited remedy has failed of its essential purpose.” In Environtech, the trial court
ruled 	at 	the 	conclusion 	of 	evidence 	that 	a 	consequential 	damages 	exclusion 	was 	not
unconscionable, but, still submitted to the jury the questions of whether the remedy provided in
the contract failed of its essential purpose and whether consequential damages should not be
excluded. The Supreme Court of Virginia ruled that the trial court erred, finding that once it is
determined 	that 	a 	consequential 	damages 	exclusion 	is 	not 	unconscionable, 	consequential
damages are not recoverable under any circumstances, even if the contract’s remedy fails of its
essential purpose.
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Here, because the court has determined that the consequential damages exclusion is not
unconscionable, the question of whether the provision fails of its essential purpose is immaterial.
Therefore, there is no issue of material fact as to whether the 2005 Supply Agreement properly
excluded consequential damages.
D. Indemnification
In Count II the Trustee alleges that as a result of DVP’s termination of the 2005 Supply
Agreement the Debtor “incurred and will continue to incur damages, costs, losses, liabilities,
expenses and attorneys’ fees as a result of claims and demands by the States of West Virginia
and Maryland for environmental reclamation.” The Trustee seeks indemnity from DVP for these
expenses.
DVP argues such damages are consequential damages that are specifically excluded by
by the 2005 Supply Agreement.
Article 11.11(b) of the Agreement describes DVP’s agreement to indemnify the Debtor:
Buyer agrees to indemnify, save harmless and, at Seller’s sole option, defend
Seller and Seller’s directors, officers and employees from and against all claims,
demands, damages, costs, losses, liabilities, expenses, attorneys’ fees (including
attorneys’ fees and costs relating to appellate proceedings), in any manner arising
out 	of, 	resulting 	from, 	caused 	by 	or 	in 	connection 	with 	any 	of 	Buyer’s
performance hereunder or the performance of its subcontractors and suppliers of
any tier, including but not limited to personal injury or death to persons and
damage to Buyer’s or Seller’s property or facilities, or the property of any other
person including Buyer’s or Seller’s employees. 	However, nothing herein shall
be construed as making Buyer liable for any injuries, deaths, or damage caused by
the sole negligence of Seller.
This language must be read together with the limitation of liability provision in Article
9.7, which states:
. 	. 	. 	NEITHER 	PARTY 	SHALL 	BE 	LIABLE 	TO 	THE 	OTHER 	FOR
CONSEQUENTIAL, 	INCIDENTAL, 	PUNITIVE, 	EXEMPLARY 	OR
INDIRECT 	DAMAGES, 	LOST 	PROFITS, 	OR 	OTHER 	BUSINESS
INTERRUPTION DAMAGES, WHETHER BY STATUTE, IN TORT OR IN
CONTRACT, UNDER THIS AGREEMENT, ANY TRANSACTION, ANY
INDEMNITY PROVISION OR OTHERWISE.
The court must give effect to every provision of the bargain the parties chose to make in
executing the 2005 Supply Agreement. 	The presumption is that words are not used “aimlessly
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and that no provision is merely a superfluity unless it is plainly a repetition.” 4A Michie’s
Jurisprudence of Va. & W. Va., Contracts, § 48 (citing Ames v. American Nat. Bank, 176 S.E.
204 (1934); American Health Ins. Corp. v. Newcomb, 91 S.E.2d 447 (1956)).
Article 11.11(b), expressly provides that DVP agrees to indemnify the Debtor against
damages arising out of performance of the 2005 Supply Agreement. 	Consequential and
incidental liabilities that arise out of a parties’ breach of contract are not expressly included in
the indemnity agreement, but the use of the phrase, “including but not limited to,” leaves open
the possibility that the parties intended to include such damages.
However, such an interpretation would render superfluous the limitation of liability
provision in Article 9.7. 	In particular, the court has determined that the parties agreed under
Article 9.7 to exclude a wide scope of otherwise available contract remedies. Although damages
for environmental reclamation and other liabilities to third-parties are excluded as consequential
damages, those are the very damages against which the Trustee seeks indemnification from
DVP. 	Thus, the Trustee’s interpretation of the contract does not give effect to both the
indemnity agreement in Article 11.11(b) and the broad damages exclusion in Article 9.7. 	In
effect, the Trustee’s interpretation renders the consequential damages exclusion under Article 9.7
superfluous.
The court cannot as a matter of law give the contract the effect suggested by the Trustee.
Instead, Article 9.7 excludes the damages the Trustee seeks by way of indemnity in Article
11.11(b).
IV. CONCLUSION
The 2005 Supply Agreement is clear and unambiguous as to whether the Debtor had
triggered an Event of Default at the time DVP sent its termination letter on February 22, 2006.
However, the Trustee raises genuine issues of material fact as to whether DVP waived or should
be estopped from asserting the Debtor’s insolvency as a defense to the Trustee’s breach of
contract action. Therefore, the court will deny summary judgment as to the Trustee’s Count I for
breach of the 2005 Supply Agreement and Count III for breach of the Settlement Agreement.
The court will grant summary judgment as to the meaning of the consequential damages
exclusion in Article 9.7 of the 2005 Supply Agreement in that the contract language clearly and
unambiguously excludes consequential damages and, in particular, damages for environmental
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reclamation and third-party breach liabilities prayed for in the Trustee’s complaint.
The court finds that the indemnity agreement contained in the 2005 Supply Agreement
does not cover the damages sought in the Trustee’s Count II. 	Therefore, the court will grant
DVP’s motion for summary judgment on Count II. 	For that reason, the court does not need to
reach the question of whether the Trustee is time-barred from asserting an indemnification
demand.
The court will enter a separate order pursuant to Fed. R. Bankr. P. 9021 that grants in part
and denies in part DVP’s Motion for Summary Judgment.
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