909 F. Supp. 2d 350
D. Del.2012Background
- Dow Chemical Canada, Inc. sues HRD Corporation for damages after breach of two contracts: Joint Development Agreement and Supply Agreement, governing development and sale of polyethylene wax from the Sarnia Plant.
- The Implementation Date occurred on Feb 28, 2003; Beneficial Manufacture began with Dow’s first deliveries in May 2004.
- Three payment types under the Supply Agreement—Capacity Rights Payment (CRP), Annual Operating Payment (AOP), and Variable Cost Payment (VCP)—compensated Dow for conversion, operations, and raw materials costs.
- The parties disputed the damages due from HRD’s breach after Beneficial Manufacture; Dow seeks AOP for 2005, Final CRP, and other stipulated damages, plus interest and fees; HRD challenges constructively terminating, penalties, and mitigation arguments.
- The court previously granted summary judgment on breach and now addresses damages, severability, and the reasonableness of liquidated damages provisions, ultimately awarding separate damages and allowing proof of actual damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Dow is entitled to AOP for the remainder of 2005 | Dow argues AOP for full 2005 under termination upon notice in Jan 2005 | HRD argues constructive termination in 2004 and penalty overreach | AOP remainder is unenforceable; damagesovided as actual damages instead. |
| Whether the Annual Capacity payment is a valid liquidated damages provision | Dow contends lost opportunity costs justify damages | HRD contends provision is a penalty and not related to damages | Annual Capacity provision is valid liquidated damages and payable ($9,000,000). |
| Whether Dow is entitled the Final CRP payment | Dow asserts Final CRP true-up remains due despite amendment | HRD argues settled CRP payments satisfied | Dow entitled to Final CRP payment of $1,948,000 CAN. |
| Whether Dow is entitled interest on damages and mitigation impacts | Dow seeks interest per contract on undisputed damages | Interest provision not applicable where there was dispute/mitigation issues | Interest not awarded under the disputed-overdue amounts; mitigation arguments not controlling for stipulated damages. |
Key Cases Cited
- Brazen v. Bell Atlantic Corp., 695 A.2d 43 (Del. 1997) (two-prong test for liquidated damages; reasonableness and uncertainty of damages at contracting)
- Delaware Bay Surgical Services, P.C. v. Swier, 900 A.2d 646 (Del. 2006) (clarifies reasonableness of liquidated damages in Delaware Supreme Court)
- Lipson v. Anesthesia Services, P.A., 790 A.2d 1261 (Del. Super. 2001) (constructive termination not applicable to supply contracts; distinct context)
- W & G Seaford Assoc., L.P. v. Eastern Shore Markets, Inc., 714 F.Supp. 1336 (D. Del. 1989) (reiterates disjunctive standard: damages must be reasonable in light of anticipated or actual loss)
- Lee Builders v. Wells, 103 A.2d 918 (Del. Ch. 1954) (two-prong test for enforceability of liquidated damages: uncertainty and reasonableness)