Wednesday, September 22, 2010

Plaintiff Alleges Sufficient Facts to Survive Dismissal in Contract Over $100 Million in Furnace Coke

This post is a summary brief of a case. Follow the link to the case to read more.

ARCELORMITTAL CLEVELAND, INC., et al., v. JEWELL COKE COMPANY, L.P., CASE NO. 1:10-CV-00362 (Ohio Northern District, September 21st 2010).

The Plaintiff sued seeking reformation of an alleged mistake in a long-term contract for the supply of blast furnace coke. The parties originally agreed that Defendant would provide an annual supply of approximately 700,000 tons of blast furnace coke to Plaintiff for 3 years with an option to extend for two more years. The parties executed an amended agreement later to make it for the whole 5 years and for a new annual sale contract of 700,000 tons of coke from January 1, 2008 through 2020 under a new pricing formula. The parties based their amended purchase agreement pricing formula on the price of coke sold under a former agreement.

In its complaint, the Plaintiff alleged that the pricing formula for the furnace coke in the amended purchase agreement contained an error that required the Plaintiffs to pay a 50% premium for Defendant's furnace coke and were being overcharged $100 million.  On the other hand, the Defendant contended that the pricing formula in the agreement was correct. The accurate interpretation of the disputed formula turned on whether the weighted average of a calculation from the previous agreement belonged in the numerator or the denominator of the pricing multiplier.

The Defendant argued that (1) the Plaintiff failed to state a plausible claim of either mutual or unilateral mistake; (2) the Plaintiff's mistake claims failed because the Plaintiff was negligent in discovering the alleged mistake; (3) the Plaintiff's claim of mutual mistake failed because the Plaintiff did not adequately plead mutual mistake, and instead plead an implausible scrivener’s error; (4) the Plaintiff's unilateral mistake claim failed due to an insufficient pleading of the Defendant’s knowledge of the mistake; (5) the Plaintiff's unilateral mistake claim failed because the Plaintiff bore the risk of mistake; and (6) the Plaintiff's claim for unjust
enrichment was barred since an express contract governed the dispute.

The court found that the Plaintiff alleged sufficient facts to support their claim of mistake based upon negotiation of the contract and amended contract, that the Defendant's coke was supposed to be priced at a discount, and was mistakenly priced at a premium.  The court found that the Plaintiff's claim that they did not notice the mistake because of an illustration provided by the Defendants during negotiations which did not show the mistaken pricing formula that the Plaintiff relied upon was enough to satisfy the pleading standard of “good faith and fair dealing” required under Ohio law, and that negligence did not bar the Plaintiff's claim. The court found that a "scrivener's error" could be grounds for mutual mistake under Ohio law and was sufficiently pleaded.

The court also found that unilateral mistake was also sufficiently pleaded because the term at issue in the contract was material and it was plausible that the Defendant should have known of the mistake because the Defendant drafted the contract, provided a inaccurate illustration of the contract, engaged in negotiation with plaintiff based on the illustration, and then later accepted the steeply inflated payments. The court found that the Plaintiff's unjust enrichment claim was not barred as a matter of law because although the parties had an agreement that would normally govern their dispute, the agreement itself was disputed so an unjust enrichment claim was proper.  Accordingly, the court denied all of the Defendant's arguments for dismissal.