Coal Network, LLC
MEMORANDUM OPINION AND ORDER PARTIALLY RESOLVING DEBTOR‘S OBJECTION TO CREDITOR‘S PROOF OF CLAIM
Creditor CEMEX Construction Materials Atlantic, LLC filed Proof of Claim No. 15 in Debtor Coal Network, LLC‘s chapter 11 bankruptcy case. The claim is based on Debtor‘s purported prepetition breach of the parties’ coal supply agreement. Creditor claims $3,881,525.18, and Debtor asserts Creditor improperly calculated the value of its claim. This Order resolves the limited issue of how to calculate the amount Debtor would owe to Creditor for replacement coal.
I. Background.
Debtor “operates as an energy solutions provider, specializing in the trade of coal and blended coal products for the thermal, industrial, metallurgical markets. Coal Network enters into contracts with customers to procure coal and arrange for
Before the Court is Debtor‘s Objection to Creditor‘s Proof of Claim No. 15 and Creditor‘s Response thereto. [ECF Nos. 363, 370.] Debtor contends that, under Tennessee‘s Uniform Commercial Code (“UCC”), Creditor‘s damages for the Replacement Coal are limited to the difference between the Full Purchase Price and the price Creditor would have paid for the same amount of coal under the Agreement (“Cover Damages”). At a hearing on December 13, 2023, the parties agreed this Court should issue a limited ruling addressing whether the Agreement permits Creditor to claim the Full Purchase Price or only Cover Damages.1
II. Jurisdiction.
This Court has jurisdiction over this chapter 11 case.
III. Burden of Proof.
A proof of claim filed in accordance with the Federal Rules of Bankruptcy Procedure constitutes prima facie evidence of the validity and amount of the claim.
IV. Creditor is Not Entitled Under the Agreement to Recover from Debtor the Full Purchase Price of the Replacement Coal.
A. Debtor‘s argument.
The Agreement‘s choice of law clause states Tennessee law governs the Agreement. [ECF No. 363-2 at § 16.1.] Debtor contends Creditor‘s damages are limited based on applicable provisions of Tennessee‘s UCC. Quoting the UCC, Debtor asserts that “[w]here the seller fails to make delivery . . . the buyer may cancel” the contract and “recover from the seller as damages the difference between the cost of cover [i.e. the replacement goods] and the contract price together with any incidental or consequential damages . . . .” [ECF No.
B. Creditor‘s argument.
Creditor contends the Agreement permissibly replaces the UCC cover damages calculation for circumstances in which it may purchase Replacement Coal. [ECF No. 370 at 9 (citing
C. Tennessee law on contract construction.
As no party challenges the Agreement‘s choice of law provision, the Court will apply Tennessee law to resolve the parties’ dispute. Wallace Hardware Co. v. Abrams, 223 F.3d 382, 398 (6th Cir. 2000) (stating Kentucky courts recognize and honor choice of law provisions, particularly in UCC transactions, unless certain exceptions apply). Tennessee courts apply rules of contract interpretation with the sole objective of effecting “justice between the parties, by enforcing a performance of their agreement according to the sense in which they mutually understood it at the time it was made. Common sense must be applied to each case, rather than any technical rules of construction.” Individual Healthcare Specialists, Inc. v. BlueCross BlueShield of Tennessee, Inc., 566 S.W.3d 671, 688 (Tenn. 2019) (citation omitted). “[C]ourts must interpret contracts so as to ascertain and give effect to the intent of the contracting parties consistent with legal principles.” Id. To determine the parties’ intent, courts “should focus on the four corners of the contract, the circumstances in which the contract was made, and the parties’ actions in carrying out the contract.” Id. at 692.
“A court‘s initial task in construing a contract is to determine whether the language of the contract is ambiguous . . . .” Planters Gin Co. v. Fed. Compress & Warehouse Co., Inc., 78 S.W.3d 885, 890 (Tenn. 2002). Language in a contract is ambiguous when it is “susceptible to more than one reasonable interpretation.” Allstate Ins. Co. v. Watson, 195 S.W.3d 609, 611 (Tenn. 2006). “If clear and unambiguous, the literal meaning of the language controls the outcome of contract disputes.” Planters Gin Co., 78 S.W.3d at 890. Where “[t]he parties do not dispute that a valid, enforceable, and unambiguous written contract existed between them” and the court likewise finds the agreement unambiguous, then the court “must look no further than the four corners of that document . . . .” Tennessee Bank & Tr. v. Boruff, M2021-00552-COA-R3-CV, 2022 WL 781048, at *4 (Tenn. Ct. App. Mar. 15, 2022).
D. The Agreement does not support Creditor‘s interpretation that it is entitled to recover from Debtor the Full Purchase Price.
Debtor has identified a legitimate dispute as to how to calculate damages for breach of the Agreement. This rebuts the presumption of validity afforded to Creditor‘s proof of claim and places the burden
Creditor contends Tennessee‘s UCC allows parties to contract for their own remedies and damages calculations,
Creditor construes Debtor‘s agreement to “reimburse [Creditor] for any and all costs” to mean Debtor promised to reimburse Creditor for the Full Purchase Price for Replacement Coal. [Id.] The Court disagrees. Section 1.2 does not define the term “any and all costs.” Thus, the Court must look to other provisions of the document to ascertain the meaning of this phrase because ““[a] contract‘s provisions must be interpreted in the context of the entire contract, viewed from beginning to end and all its terms must pass in review, for one clause may modify, limit or illustrate another.”” Holmes v. LM Ins. Corp., No. 3:19-CV-00466, 2023 WL 6979239, at *3 (M.D. Tenn. Oct. 23, 2023) (quoting D & E Const. Co. v. Robert J. Denley Co., 38 S.W.3d 513, 519 (Tenn. 2001)).
In fact, § 13.1 limits or illustrates the meaning of the term “costs.”2 It provides Debtor agrees to indemnify, defend and hold [Creditor] harmless from any and all losses, liabilities, damages, claims . . . costs, expenses (including, without limitation, reasonable attorneys’ fees), penalties, fines and judgments of any nature whatsoever (collectively “losses”), caused by or arising out of ... any [] breach of this Agreement by [Debtor]. [ECF No. 363-2 at § 13.1.]
The parties chose to separately itemize each type of foreseeable financial remedy in § 13.1, leading to the conclusion that the parties, like courts, understand there to be differences between each remedy. See, e.g., Sullivan Cnty., Tenn. v. Home Indem. Co., 925 F.2d 152, 153 (6th Cir. 1991) (“In the language of the law . . . there is a clear distinction between ‘costs’ and ‘damages.‘”). The purposeful listing of multiple remedies including “costs” in § 13.1, and the winnowing of what would be due for a breach under § 1.2 to “any and all costs”—but not damages or expenses or losses—evidences the parties did not agree Debtor would pay the Full Purchase Price for a breach under § 1.2. Stated differently, limiting Creditor‘s recovery for a breach of § 1.2 only to “any and all costs,” when the parties understood multiple other financial remedies to exist, belies the argument the parties agreed Creditor would receive a windfall—i.e., that Debtor would pay for all of Creditor‘s coal if Debtor could not supply it, such that Creditor would receive free coal.
It would create an internal conflict within the Agreement—as well as defy the rules of contract interpretation and common sense—to find the parties intended
Debtor contends the Court should simply apply Tennessee‘s UCC and award Cover Damages. [ECF No. 363 at ¶¶ 46-50.] Debtor‘s counsel also argued at the hearing the term “adjusted Price” as used in § 1.2 clarifies the meaning of “any and all costs” and shows the parties agreed to limit Creditor‘s remedy to Cover Damages if Debtor failed to supply contracted coal. The Court disagrees with this reading of § 1.2. The term “adjusted Price” in § 1.2 is followed by the parenthetical “(as defined in Section 2.2 of this Agreement).” [Id.] Section 2.2 explains how the contract price of supplied coal may be adjusted if quality issues exist. It does not state or suggest the damages available to Creditor if it must buy replacement coal are limited to the difference between the contract price and the price of the replacement coal.
Nevertheless, the Court agrees with Debtor that Creditor‘s remedy for purchase of the Replacement Coal is Cover Damages under Tennessee‘s UCC. The Agreement does not define the term “all costs” for purposes of the remedy provided in § 1.2, and neither party‘s view of what “all costs” means in § 1.2 draws support from tenets of contract interpretation. The Agreement is for a transaction in goods involving a merchant, and thus the UCC governs the Agreement.
V. Conclusion.
In sum, Creditor has not satisfied its burden to establish the value of its claim is set forth correctly in Proof of Claim No. 15. Reading the Agreement as a whole, the parties did not intend Creditor to recover the Full Purchase Price of Replacement Coal following Debtor‘s breach of the
- Creditor may only claim Cover Damages for any Replacement Coal it purchased upon Debtor‘s failure to supply coal pursuant to the Agreement.
- Creditor shall amend its proof of claim within 14 days to be consistent herewith.
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The affixing of this Court‘s electronic seal below is proof this document has been signed by the Judge and electronically entered by the Clerk in the official record of this case.
Signed By:
Tracey N. Wise
Bankruptcy Judge
Dated: Friday, December 22, 2023
(tnw)