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BAE Systems Ordnance Systems, Inc. v. El Dorado Chemical Co.

United States District Court, W.D. Arkansas, El Dorado Division

March 19, 2018

BAE SYSTEMS ORDNANCE SYSTEMS, INC. and XL INSURANCE AMERICA, INC., as Subrogee of BAE Systems Ordinance Systems, Inc. PLAINTIFFS
v.
EL DORADO CHEMICAL COMPANY DEFENDANT

          MEMORANDUM OPINION

          SUSAN O. HICKEY UNITED STATES DISTRICT JUDGE

         Before the Court is El Dorado Chemical Company's (“Defendant”) Amended and Substituted Motion for Summary Judgment or Partial Summary Judgment. ECF No. 72. BAE Systems Ordinance Systems, Inc. and XL Insurance America, Inc. (collectively “Plaintiffs”) have filed a response in opposition to Defendant's motion. ECF No. 70. Defendant has filed a reply. ECF No. 84.

         Also pending before the Court is Plaintiffs' Motion for Summary Judgment on Count I. ECF No. 83. Defendant has filed a response in opposition to the motion. ECF No. 89. Plaintiffs have filed a reply (ECF No.100), and Defendant has filed a sur-reply. ECF No. 101.

         The Court finds this matter fully briefed and ripe for its consideration. For the reasons set out below, Defendant's motion is granted. Accordingly, Plaintiffs' motion is denied and their Complaint is dismissed with prejudice.

         I. BACKGROUND

         The following facts are deemed uncontroverted and are viewed in the light most favorable to the non-moving party.

         This is a breach of contract case. Plaintiff BAE Systems Ordinance Systems, Inc., (“BAE”) is a Delaware corporation that is engaged in the business of manufacturing military grade energetics for munitions systems. Defendant is an Oklahoma corporation that is primarily engaged in the business of manufacturing, selling, and supplying nitric acid, ammonium nitrate, and mixed acids from its chemical manufacturing facility in El Dorado, Arkansas.

         As part of its business activities, BAE operated the Holston Army Ammunition Plant (“Holston Plant”) in Kingsport, Tennessee, where it produced explosives for the United States military. In January 2009, Defendant and BAE entered into an agreement whereby Defendant agreed to sell 10.5 million pounds of 98% Nitric Acid to BAE for its use at the Holston Plant (hereinafter “the Holston Agreement”). ECF No. 65-2, p. 2. The Holston Agreement also included an automatic renewal clause (hereinafter “the Evergreen Clause”), which stated as follows: “This agreement shall cover the one (1) year period January 1, 2009, through December 31, 2009, and shall continue thereafter in full force and effect unless terminated by either party without cause upon six (6) months written notice.” Id. at 4.

         On January 30, 2010, the parties modified the Holston Agreement (hereinafter the “2010 Revision”). ECF No. 85-3, p. 28. The 2010 Revision provided, in relevant part, as follows:

“This Purchase Contract dated the 24th June 2010, is hereby revised to extend the current contract thru December 31, 2011 for Nitric Acid. Approximately seventy two (72) railcars to be released in CY10 & CY11. Pricing will still be determined monthly based on the raw materials increase and fuel cost.”

Id. The 2010 Revision also required Defendant to deliver an increased quantity of Nitric Acid to the Holston Plant. Id. Notably, the modification also included language stating that “[a]ll other terms and conditions remain unchanged.” Id.

         It appears to be undisputed that Defendant made multiple deliveries of 98% Nitric Acid to the Holston Plant after December 31, 2011. However, as discussed in greater detail below, the parties strongly dispute whether the deliveries were made pursuant to the Holston Agreement- as modified by the 2010 Revision-or on a case-by-case basis as requested by BAE.

         In addition to the Holston Plant, BAE began operating the Radford Army Ammunition Plant in Radford, Virginia (“Radford Plant”) on July 1, 2012. Prior to BAE becoming the operator of the Radford Plant, Defendant supplied nitroglycerin mixed acid (“NGMA”) to the facility for a number of years pursuant to an agreement it had with Alliant Techsystems, Inc. (“ATK”), the previous operator of the Radford Plant. After BAE replaced ATK as the operator of the Radford Plant, it began manufacturing propellants at the facility for use in Department of Defense munitions systems.

         Nitroglycerin is a critical ingredient to the majority of the propellants manufactured at the Radford Plant, and BAE uses NGMA to produce nitroglycerin at the facility. A major point of contention between the parties is whether Defendant agreed to continue supplying NGMA to the Radford Plant after BAE assumed control of the facility. BAE takes the position that the parties had a “handshake understanding and agreement” whereby Defendant would supply NGMA to BAE for use at the Radford Plant based on the same supply arrangement that Defendant had with ATK. According to BAE, Defendant agreed to begin supplying NGMA to the Radford Plant based on the aforementioned terms beginning on July 1, 2012. Defendant disputes the existence of such an agreement, stating that one of its representatives only sent a “draft quote” to BAE as part of initial discussions related to NGMA.

         On May 15, 2012, an explosion occurred at Defendant's manufacturing facility in El Dorado, Arkansas. The parties sharply disagree as to the cause of the explosion and whether Defendant was ultimately at fault for the incident. Regardless of its origin or Defendant's alleged culpability, the explosion resulted in the destruction of Defendant's direct strong nitric acid production plant and a complete loss of Defendant's 98% Nitric Acid manufacturing capacity. The explosion also resulted in Defendant being unable to produce NGMA using self-produced 98% Nitric Acid.

         On May 14, 2015, Plaintiffs filed the instant action seeking damages for Defendant's alleged breach of the Holston Agreement. ECF No. 1. Plaintiffs also claim that the course of dealing between BAE and Defendant gave rise to an implied contract for the supply of NGMA to the Radford Plant, which Defendant allegedly breached after the explosion at the El Dorado facility. Id. On July 13, 2017, Defendant filed a motion for summary judgment, arguing that it is entitled to judgment in its favor because both of Plaintiffs' breach of contract claims fail as a matter of law. ECF No. 65. Defendant later filed an amended motion for summary judgment on August 8, 2017. ECF No. 72. On November 28, 2017, Plaintiffs filed their own motion for summary judgment, arguing that they are entitled to summary judgment as a matter of law as to the first count of the Complaint. ECF No. 83. With this background in mind, the Court will proceed to the merits of the parties' motions.

         II. LEGAL STANDARD

         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. Cnty. 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 may reasonably be resolved in favor of either party.” Anderson v. Liberty Lobby,Inc., 477 U.S. 242, 250 (1986); see also Agristor Leasing v. Farrow, 826 F.2d 732, 734 (8th Cir. 1987). A fact is material only when its ...


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