Drummond Coal Sales, Inc. v. Norfolk Southern Railway Company

Drummond Coal Sales, Inc. (Drummond) (plaintiff), a coal supplier, entered into a contract with Norfolk Southern Railway Company (NSRC) (defendant) in which Drummond agreed to ship a certain amount of coal each year in exchange for fixed shipping rates. The contract provided that if Drummond failed to ship the required amount of coal, it would owe shortfall fees to NSRC. Additionally, the contract expressly allowed NSRC to enter into contracts with other utility companies. NSRC had confidential contracts with other utility companies that imposed liquidated damages on the utility companies for purchasing and shipping coal from Drummond. After Drummond and NSRC entered into their contract, United States regulations forced utilities to reduce their use of coal, making the United States coal market less attractive. From 2010 to 2016, Drummond did not ship any coal with NSRC under the contract. Drummond paid shortfall fees to NSRC for the years 2010 to 2014. Drummond preemptively filed suit against NSRC seeking declaratory relief excusing its obligation under the contract and rescission of the contract, alleging that NSRC breached the implied covenant of good faith and fair dealing by depriving Drummond of the benefit of the contract, among other claims. The jury found in Drummond’s favor on three factual issues: (1) NSRC prevented Drummond from shipping coal under the contract; (2) NSRC’s conduct constituted a breach of contract, either expressly or under the implied covenant of good faith and fair dealing; and (3) the breach was material. Drummond moved for judgment excusing it from paying shortfall fees and seeking a return of the shortfall fees already paid. The district court excused Drummond from paying additional shortfall fees but declined to order NSRC to repay the shortfall fees it had already collected. NSRC argued on appeal that no reasonable jury could find that NSRC had breached its obligation under the contract.