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Evraz Stratcor, Inc. v. Kennametal Inc.

United States District Court, W.D. Arkansas, Hot Springs Division

March 24, 2017



          Susan O. Hickey United States District Judge

         Before the Court is Plaintiff Evraz Stratcor, Inc.'s Motion for Partial Summary Judgment. (ECF No. 68). Defendant Kennametal, Inc. filed a response. (ECF No. 76). Plaintiff filed a reply. (ECF No. 80). The Court finds the matter ripe for consideration.

         I. BACKGROUND

         This is a breach of contract case. Plaintiff is an Arkansas company that sells vanadium products, including Vanadium Aluminum (“VAl”), to customers in the titanium industry. Defendant is a Pennsylvania company that, among other things, provides the service of converting raw materials into VAl.[1] Plaintiff and Defendant are parties to an Amended and Restated Conversion Agreement (the “Agreement”), which was executed on July 29, 2013, [2] as well as a Representation Agreement.

         Under the Agreement, Defendant is required to convert up to four million pounds of VAl per year for Plaintiff at a plant in New Castle, Pennsylvania (the “Conversion Facility”). Defendant is obligated to maintain and operate the Conversion Facility so that it is capable of converting raw materials into VAl. Defendant must also use its best efforts to keep the Conversion Facility's lease in full force and effect during the term of the Agreement.

         Plaintiff is required to pay Defendant a contractually established fee in exchange for Defendant's VAl conversion services. Plaintiff is obligated to supply Defendant with the raw materials needed for Plaintiff's VAl requirements, and to maintain those raw materials at the Conversion Facility.[3] Plaintiff is also obligated to provide Defendant with all of the vanadium oxide required for Defendant's production of its own, unrelated alloys.[4]

         Defendant is prohibited from converting VAl on behalf of any entity other than Plaintiff during the Agreement's duration and for three years after the Agreement's termination. Likewise, Plaintiff is prohibited from using any VAl conversion service other than Defendant's during the Agreement's duration. Plaintiff holds the exclusive right to market and sell the VAl converted by Defendant.

         In August 2014, Defendant sent Plaintiff a letter contending that Plaintiff was in material breach of the Agreement. In January 2015, Defendant filed an arbitration demand.[5] In July 2016, Plaintiff filed an amended complaint, seeking a declaratory judgment that it did not breach the Agreement-and thus Defendant cannot terminate the Agreement without first providing three years' notice to Plaintiff-and asserting two breach-of-contract claims. Defendant filed a counterclaim seeking a declaratory judgment that Plaintiff breached the Agreement-thus allowing Defendant to immediately terminate the Agreement with no prior notice to Plaintiff-as well as asserting a separate breach-of-contract counterclaim.

         On January 6, 2017, Plaintiff filed the instant motion, arguing that it is entitled to summary judgment on its and Defendants' claims seeking declaratory judgment as to whether Plaintiff breached the Agreement. Plaintiff also seeks partial summary judgment on Defendant's breach-of-contract counterclaim, with the exception of paragraph thirty-seven of Defendant's counterclaim.[6]

         II. STANDARD

         The standard for summary judgment is well established. When a party moves for summary judgment, “[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact, and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); Krenik v. County of LeSueur, 47 F.3d 953, 957 (8th Cir. 1995). This is a “threshold inquiry of . . . whether there is a need for trial-whether, in other words, there are genuine factual issues that properly can be resolved only by a finder of fact because they reasonably may be resolved in favor of either party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). A fact is material only when its resolution affects the outcome of the case. Id. at 248. A dispute is genuine if the evidence is such that it could cause a reasonable jury to return a verdict for either party. Id. at 252.

         In deciding a motion for summary judgment, the Court must consider all the evidence and all reasonable inferences that arise from the evidence in a light most favorable to the nonmoving party. Nitsche v. CEO of Osage Valley Elec. Co-Op, 446 F.3d 841, 845 (8th Cir. 2006). The moving party bears the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. See Enterprise Bank v. Magna Bank, 92 F.3d 743, 747 (8th Cir. 1996). The nonmoving party must then demonstrate the existence of specific facts in the record that create a genuine issue for trial. Krenik, 47 F.3d at 957. However, a party opposing a properly supported summary judgment motion “may not rest upon mere allegations or denials . . . but must set forth specific facts showing that there is a genuine issue for trial.” Id. at 256.


         Plaintiff argues that it is entitled to summary judgment on its and Defendants' declaratory-judgment claims, as well as partial summary judgment on Defendant's breach-of-contract counterclaim. However, as a preliminary matter, the Court must first address the law which governs the Agreement.

         A. Choice of Law

         The Court agrees with the parties that the Agreement should be governed by Pennsylvania law. Federal district courts sitting in diversity, like the Court in this case, must apply the forum state's substantive law, including its conflict-of-law rules. Guardian Fiberglass, Inc. v. Whit Davis Lumber Co., 509 F.3d 512, 515 (8th Cir. 2007). Therefore, the Court will utilize Arkansas's choice-of-law rule. “Arkansas courts will honor [a contractual] choice of law provision, ‘provided that the law selected is reasonably related to the transaction and does not violate a fundamental public policy of the state.'” Id. (quoting Ark. Civ. Prac. & Proc. § 6:7).

         The Agreement states that it “shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania.” (ECF No. 68-1). Defendant is a Pennsylvania corporation that converts VAl in Pennsylvania for Plaintiff. Thus, the Court finds that Pennsylvania law bears a reasonable relationship to the parties' contractual arrangement. See Nursing Home Consultants, Inc. v. Quantum Health Servs., Inc., 926 F.Supp. 835, 841 (E.D. Ark. 1996), aff'd, 112 F.3d 513 (8th Cir. 1997) (applying Pennsylvania law to a contract dispute between an Arkansas corporation and a Pennsylvania corporation in light of the parties' choice-of-law provision). Neither party argues that a public policy of the State of Arkansas would override the parties' choice of law. Accordingly, the Court will apply Pennsylvania substantive law in interpreting the Agreement.

         B. Plaintiff and the Agreement

         Plaintiff's amended complaint seeks, inter alia, a declaratory judgment that it did not breach the Agreement. Defendant's first counterclaim seeks a mirrored declaratory judgment that Plaintiff did breach the Agreement. Defendant also asserts a breach-of-contract counterclaim that essentially tracks the allegations in Defendant's declaratory-judgment counterclaim.

         Defendant's declaratory-judgment counterclaim asserts that Plaintiff breached or otherwise failed to carry out its duties under the Agreement in good faith in, inter alia, the following ways:

a) [Plaintiff] is failing to use its best efforts to provide orders for VAl to [Defendant], it is purposefully limiting its sales of VAl, and it is providing [Defendant] with far fewer orders for VAl than is necessary for [Defendant] to operate the Conversion Facility;
b) [Plaintiff] has failed to provide sufficient raw materials for [Defendant] to meet VAl customer requirements for orders that ...

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