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Case Studies - Coal/Extractive
Breach of Contract/Lost Profits
Case Study A
Engagement
The Plaintiff claimed damages related to an alleged breach of contract under the terms of an agreement, which required the Defendant to supply the Plaintiff coal shipments between January and June. In March, the Plaintiff notified the Defendant that it had failed to supply the shipments as per the terms of the agreement. In addition to damages related to the original breach, the Plaintiff alleged damages were incurred when it was forced to purchase "covered shipments" at spot market prices. The damage estimate alleged by the Plaintiff totaled $6.4mm.
Gleason's Role
Gleason & Associates was retained to determine the reasonableness of the Plaintiff's damage claim under the assumption of liability, which required analyzing the contract at issue in the case, as well as how that contract was positioned relative to worldwide coal pricing and industry factors at the time of the agreement. If we determined the Plaintiff's damage claim to be unreasonable, we were to provide an alternative analysis and assessment for damages.
Results
Gleason & Associates determined that the Plaintiff's damage claim was unreasonable and overstated, as it failed to consider appropriate factors that would have mitigated damages. We provided an alternative analysis that offered two alternatives.
In the event that the Plaintiff's assumption of "covered shipments" were accepted, we concluded that the Plaintiff suffered no more than approximately $2.3mm of financial damages of the alleged breach.
If it was determined that the covered shipments should not constitute the damage claim, and that damages should have been calculated as of the date the Plaintiff knew of the alleged breach, we concluded that the Plaintiff saved approximately $1.5mm as a result of the alleged breach.
Case Study B
Engagement
The Defendant had entered into three coal supply contracts with the Plaintiff. Due to force majeure events at the mine (collapsing mine ceiling), the Defendant ceased shipments of coal to the Plaintiff. The Plaintiff claimed it experienced financial damages as a result of having to purchase coal on the spot market. The matter was before an arbitration panel.
Gleason's Role
Our objectives in this engagement were to analyze the economic damages, if any, the Plaintiff would have experienced as a result of the Defendant's alleged failure to provide coal in accordance with the terms of the Agreements.
We reviewed documentation provided by the Plaintiff in an effort to understand the historical cost, quantity and quality of coal purchased by the Plaintiff subject to its purchase agreements with the Defendant and other suppliers. In addition, we reviewed the contractual arrangements that the Plaintiff had with its coal suppliers to determine the dates that the agreements were effective, the contract terms in place during the years covered by the contracts and the various terms dictating the cost, quantity and quality of fuel to be supplied pursuant to the agreements.
Results
We concluded that for the four year span, the coal that the Plaintiff acquired through contracts negotiated with other suppliers was $1 million more expensive than the after-processing cost of the Defendant's raw coal. The opposing expert calculated damages in excess of $30 million.
The case confidentially settled after issuance of our report but prior to a hearing before the arbitrators.
Case Study C
Engagement
In 2002, the Plaintiff had formed an agreement with the Defendant to supply them with coal for the Defendant's production of energy. In 2005, mining and financial difficulties curtailed the Plaintiff's ability to mine coal, and the Plaintiff and Defendant signed two inter-related agreements.
The first 2005 agreement supplied the Defendant with coal under terms revised since the original agreement; the second 2005 agreement supplied a related party of the Defendant. In addition, a settlement agreement was signed in 2005. It acknowledged default and related damages to the Defendant under the 2002 agreement, but the Defendant agreed not to seek recovery for those damages so long as the Plaintiff satisfied the first of the new agreements.
In February 2006, the Defendant notified the Plaintiff that the new agreements were terminated, as they alleged that the Plaintiff was insolvent and unable to pay its debts; the Defendant demanded approximately $90mm in damages as a result of the alleged breaches of contract.
The Plaintiff has since filed for bankruptcy and is currently undergoing liquidation under Chapter 7. Its trustee has filed separate actions alleging that the Defendant's repudiations of the new agreements constitute a material breach, that the Plaintiff has incurred financial damages related to the breaches, and that the $90mm of indebtedness be eliminated and the Defendants' claims against the estate be disallowed in their entirety.
Gleason's Role
Gleason & Associates was retained to determine (1) if the Plaintiff was insolvent and unable to pay its maturing debts as of the date the Defendant executed and terminated the first 2005 agreement; (2) the damages experienced by the Plaintiff as a result of the alleged repudiation and breach; and (3) the damages experienced as a result of the Defendant's alleged tortuous interference with the second 2005 agreement.
Results
Gleason & Associates determined that the company was insolvent and unable to pay its maturing debts as of the execution and termination dates of the first 2005 agreement. Gleason & Associates also determined that the Plaintiff, in the event of the Defendant's liability, incurred total contract and indemnification damages of approximately $111mm.
Lastly, Gleason & Associates determined that the Plaintiff incurred consequential damages associated with the Defendant's tortious interference with the second 2005 agreement equal to $78mm.
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