Smart Sand, Inc. v. US Well Services LLC ( 2021 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
SMART SAND, INC., )
Plaintiff, )
)
)
v. ) C.A. No. N19C-01-144
) PRW CCLD
US WELL SERVICES LLC, )
Defendant. )
Submitted: May 7, 2021
Decided: June 1, 2021
Issued: June 11, 2021*
DECISION AFTER TRIAL
Neal J. Levitsky, Esquire, Seth A. Niederman, Esquire, FOX ROTHSCHILD LLP,
Wilmington, Delaware; Steven J. Daroci, Esquire, FOX ROTHSCHILD LLP,
Lawrenceville, New Jersey, Attorneys for Plaintiff Smart Sand, Inc.
Richard P. Rollo, Esquire, Travis S. Hunter, Esquire, Alexandra M. Ewing, Esquire,
RICHARDS LAYTON & FINGER, P.A., Wilmington, Delaware; Stephen H. Lee,
Esquire, Mary Anna H. Rutledge, Esquire, PORTER LEDGES LLP, Houston, Texas,
Attorneys for Defendant US Well Services LLC.
WALLACE, J.
In 2019, Plaintiff Smart Sand, Inc., filed its Complaint alleging non-payment
under the parties’ Master Product Purchase Agreement (together with its amendment
executed on May 1, 2016, the “PPA”), and Railcar Usage Agreement (collectively
the “Agreements”).1 Defendant US Well Services LLC, counterclaimed alleging
breach of the implied covenant of good faith and fair dealing, tortious interference
with business customers, breach of contract, and seeking declaratory judgment
related to its termination of the PPA.2
On Smart Sand’s earlier motion, the Court dismissed US Well’s breach of the
implied covenant and tortious interference claims, leaving US Well’s
breach-of-contract and declaratory judgment counterclaims.3
Smart Sand then filed its First Amended and Supplemental Complaint, adding
claims for additional amounts due under the PPA.4 When the Agreements expired
in April 2020, Smart Sand filed its Second Amended and Supplemental Complaint,
adding a claim for US Well’s non-payment of Smart Sand’s final invoice.5
* This decision is issued after consideration of the parties’ requests for redaction of certain
non-parties’ confidential information and with the Court’s own necessary corrections.
1
Compl., Jan. 14, 2019 (D.I. 1).
2
First Am. Countercls., Apr. 18, 2019 (D.I. 17).
3
Judicial Action Form, June 19, 2019 (D.I. 39).
4
First Am. Compl., Aug. 28, 2019 (D.I. 55).
5
Second Am. Compl., June 10, 2020 (D.I. 200).
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After myriad discovery disputes, fact and expert discovery closed in
late 2020.6
The Court then heard, and subsequently denied, the parties’ Cross Motions for
Summary Judgment and Motions in Limine.7 Finally, in mid-December 2020, a trial
commenced on the remaining factual issues.8
I. THE TRIAL
The Court heard testimony during a five-day bench trial. Thereafter, the
parties submitted post-trial briefings and motions. The respective cases were
deemed fully submitted for decision in February 2021.
During trial, the Court heard from and considered the testimony of the
following witnesses:
Lee Beckelman Joel Broussard (by deposition)
William John Young Kyle O’Neill (by deposition)
Ronald Wheelan Brian Stewart (by deposition)
Stephen L. Becker Nathan Houston
Christopher LaBarte (by deposition) Brian Savisky
Matthew Bernard (by deposition) Dana M. Trexler
6
The Court greatly appreciates the invaluable service of appointed Special Master Matthew F.
Boyer in deftly addressing the parties’ numerous discovery disagreements during the pendency of
this matter.
7
Judicial Action Form, Nov. 24, 2020 (D.I. 317).
8
Trial Worksheet, Jan. 4, 2021 (D.I. 327).
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The parties also submitted an extensive number of exhibits, most of which
were admitted without objection and are cited herein by their designations as joint
exhibits.
II. FINDINGS OF FACT
It is difficult at times in the trial of certain actions to fully and cleanly
segregate findings of fact from conclusions of law. To the extent any one of the
Court’s findings of fact here might be more appropriately viewed as a conclusion of
law, that finding of fact may be considered the Court’s conclusion of law on that
point.9
A. THE PARTIES
Smart Sand is a Delaware corporation with its principal place of business in
The Woodlands, Texas.10 Smart Sand is a domestic producer and supplier of frac
sand, a mineral product commonly used in the oil and gas industry.11 US Well is a
Delaware limited liability company with its principal place of business in Houston,
9
See Facchina Constr. Litigs., 2020 WL 6363678, at *2 n.12 (Del. Super. Ct. Oct. 29, 2020)
(collecting authority).
10
Second Am. and Supp. Compl. ¶ 1.
11
Compl. ¶ 1; see generally Hobart M. King, What is Frac Sand?, GEOLOGY.COM—GEOSCIENCE
NEWS AND INFORMATION, https://geology.com/articles/frac-sand/ (last visited May 27, 2021)
(“‘Frac sand’ is a high-purity quartz sand with very durable and very round grains. It is a crush-
resistant material produced for use by the petroleum industry. It is used in the hydraulic
fracturing process (known as ‘fracking’) to produce petroleum fluids, such as oil, natural gas, and
natural gas liquids from rock units that lack adequate pore space for these fluids to flow to a well.”).
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Texas.12 US Well is an oilfield service company that provides hydraulic fracturing
services, including pressure pumping, to oil and gas exploration and production
companies.13
B. THE AGREEMENTS
On November 6, 2015, Smart Sand and US Well entered into a Master Product
Purchase Agreement through which Smart Sand supplied frac sand to US Well.14
The PPA required US Well to pay a monthly non-refundable capacity reservation
charge, regardless of whether US Well actually purchased and took any frac sand
for the given month (the “Reservation Charge”).15
The PPA required US Well to purchase a total of two million tons of sand
over a four-to-seven-year period at prices that fluctuated based on various factors.16
If US Well failed to purchase the required amount of sand in any contract year, it
was required to pay an annual “True Up Payment” equal to $40 multiplied by the
12
Id. ¶ 2.
13
First Am. Countercls. ¶ 3.
14
Compl. ¶¶ 3, 7; First Am. Countercls. ¶ 3.
15
Compl. ¶ 10.
16
First Am. Countercls. ¶ 5; Joint Exhibit 1 (“JX”) (PPA §§ 1.1, 1.2, 7.1) (D.I. 338 – letter from
Seth Niederman enclosing the electronic media containing the Joint Trial Exhibits; D.I. 339 – Joint
Exhibits List).
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difference between the Minimum Tons per Year (“MTPY”) amount and the actual
tons purchased.17
At the same time, the parties also entered into a Railcar Usage Agreement
(“RUA”).18 Under the RUA, US Well “borrowed” railcars from Smart Sand for the
delivery of sand purchased under the PPA in exchange for a monthly fee of $650 per
railcar.19 The RUA’s term continued until the termination or expiration of the PPA.20
Upon the expiration of the four-to-seven-year term, US Well was required,
under PPA Section 1.5(c), to pay a Cumulative Shortfall Payment (“CSP”) “equal to
$40 multiplied by the difference between the aggregate [MTPY] during the Term
(i.e. 2,000,000 tons)” and the actual tons of sand purchased by US Well during the
term, reduced by the amount of any prior True Up Payments and Unused Reservation
Charges.21
In the fall of 2018, US Well stopped purchasing sand from Smart Sand, and
ceased meeting its payment obligations.22 In January 2019, US Well purported to
17
JX-2 (First Am. to PPA § 1.2).
18
Compl. ¶¶ 3, 7; First Am. Countercls. ¶ 6.
19
JX-4 (RUA).
20
Id.
21
JX-2 (First Am. to PPA § 1.3).
22
JX-268 (Oct. 24, 2018 email correspondence re: Smart Sand Prepayment), JX-278 (Nov. 1,
2018 email correspondence re: Smart Sand Oct. Railcar Usage Invoice), JX-373 (Final Invoice).
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terminate the Agreements, retroactively from September 1, 2018, claiming that
Smart Sand breached the PPA.23 The PPA expired on April 30, 2020.24 According
to Smart Sand’s final invoice, US Well purchased 793,176.47 tons of sand, leading
to a reported shortfall of 1,206,823.53 tons.25
From the time of US Well’s purported termination of the Agreements to the
time Smart Sand calculated the earliest possible PPA expiration, Smart Sand sent
US Well multiple invoices for amounts it deemed due under the PPA.26 On May 4,
2020, Smart Sand sent US Well a final invoice setting forth all amounts Smart Sand
claimed were due and payable under the Agreements.27 The final invoice included
the CSP of $48,272,941.20 and Railway Fees of $5,850,000. According to Smart
Sand, that CSP calculation “represents the total shortfall obligation of [US Well]
under the PPA for the tons it failed to purchase at the $40-per-ton rate and is
inclusive of prior Reservation Charges and shortfall/deferred tonnage invoicing that
[US Well] failed to pay.”28
23
JX-333 (Jan. 11, 2019 US Well Termination Letter).
24
Trial Tr., Dec. 14, 2020, at 104 (Lee Beckelman) (D.I. 347).
25
JX-373 (Final Invoice).
26
JX-346 (Contract Year 3 True Up Payment Invoice and Deferral Elimination Payment
Invoice).
27
JX-373 (Final Invoice).
28
Id.
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C. CERTAIN KEY TRIAL TESTIMONY
The trial began on December 14, 2020, with Lee Beckelman, Smart Sand’s
Chief Financial Officer, as the first witness.29 Mr. Beckelman testified to his
business understanding of the frac sand industry, the Agreements between Smart
Sand and US Well, and the cumulative shortfall payment calculation.30
Mr. Beckelman explained that long-term take-or-pay contracts are used in the
industry to foster stability and consistency in what is an unstable market.31
Mr. Beckelman pointed to the Producer Price Index (“PPI”) and the various bands32
used in the contract as an indication of that instability:
PPI is basically trying to represent what inflation is and so it represents
a kind of general inflation number that may be in the economy or related
to a particular activity. So PPI is a Producer Price Index and so it’s
activity that basically – what the inflation of increasing in pricing is
over time and it’s an index that is calculated and published . . .
periodically.33
And, Mr. Beckelman testified, between 2010 and 2016, the price of oil—
29
Trial Tr., Dec. 14, 2020, at 17-18.
30
Id. at 20-23, 25, 26, 32.
31
Id. at 51, 64 (“[I]t helps both sides to have consistency of their business over a period of time,
because we both know there is a lot of uncertainty in our business in terms of supply and
demand.”).
32
The PPI includes “five pricing bands based on WTR.” Id. at 90.
33
Id. at 91.
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which directly affected the price of frac sand—fluctuated within range of $20/barrel
on the low end to a $100/barrel high.34 As such, Mr. Beckelman explained, Smart
Sand could not reliably project potential profits (or losses) at the time the contract
was signed.35 Additionally, Mr. Beckelman recounted that, in negotiations over the
amended PPA, it was US Well that asked for a $40/ton no-take rate, and Smart Sand
that agreed thereto.36
Concerning the CSP, Mr. Beckelman told the Court that it represented the
accumulation of the separate shortfall payments, and as such Smart Sand is not
pursuing the previously unpaid invoices “[b]ecause they are not included in the
cumulative final shortfall payment[.]”37 According to Mr. Beckelman, the PPA was
intended to provide US Well with two million tons of sand, and the various
provisions within the PPA simply provided US Well with mechanisms to defer when
that volume’s transfer would be complete.38
Next, John Young, Smart Sand’s Chief Operating Officer, testified as to how
34
Id. at 98-99.
35
Id. at 149-50.
36
Id. at 154 (“US Well did not ask to reconsider the $40 a ton. Again, in November 2015, they
requested the $40 a ton and we agreed to it.”).
37
Id. at 45.
38
Id. at 96.
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the $40/ton shortfall figure was established.39 Specifically, Mr. Young recounted
that US Well’s then Chief Executive Officer Brian Stewart had requested the $40/ton
shortfall during negotiations over the amended PPA, and that Smart Sand accepted
it.40 Additionally, Mr. Young conveyed that when the amended PPA was executed
(which included the reduced shortfall amount) the invoiced price for coarse sand
sent to US Well was $45.03/ton.41
Ronald Wheelan, Smart Sand’s Executive Vice President of Sales, then
explained how Smart Sand established its pricing. Mr. Wheelan testified that after
US Well stopped taking sand from Smart Sand, the parties attempted to renegotiate
but failed to come to agreement.42
Then, Smart Sand’s expert witness Stephen Becker, founding partner of
Applied Economics Consulting Group, was called.43 Dr. Becker, as an expert in
damage quantification, testified to the amount and type of sand US Well took under
the PPA, based on the invoices.44 Dr. Becker calculated that a total of 793,205 tons
39
Trial Tr., Dec. 15, 2020, at 93-94 (John Young) (D.I. 326).
40
Id. at 98-99 (citing JX-50), 100.
41
Id. at 105 (citing JX-429).
42
Trial Tr., Dec. 16, 2020, at 154-55, 159 (Ronald Wheelan) (D.I. 348).
43
Id. at 179 (Stephen Becker).
44
Id. at 187-88.
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of sand had actually been delivered to US Well.45
The Court also heard, through video depositions, the testimony of Christopher
LaBarte, Matthew Bernard, Joel Broussard, and Kyle O’Neill.46
In addition, the Court heard both the video deposition and live testimony of
US Well’s former Chief Executive Officer Brian Stewart, US Well’s Rule 30(b)(6)
witness.47
Mr. Stewart testified that in the original contract, the shortfall payment was
the full purchase price.48 During later negotiations aimed at amending that original
contract, Mr. Stewart admitted that he proposed a reduction of the shortfall to the
$40/ton figure and that was ultimately accepted by both sides.49 Mr. Stewart said
that while he did not know how much money Smart Sand would save by not mining
and delivering the sand to US Well, he knew it was below the full purchase price.50
Further, Mr. Stewart testified that US Well itself performed no analysis of whether
the $40/ton figure was representative of Smart Sand’s potential damages if US Well
45
Id. at 192-93 (Becker’s calculation is the result of an accumulation of the Cumulative
Purchased Tons totals listed in the first to last invoice rendered by Smart Sand to US Well).
46
Trial Tr., Dec. 16, 2020, at 202 (Christopher LaBarte), 203 (Joel Broussard), 204 (Matthew
Bernard); Trial Tr., Dec. 17, 2020 AM, at 8 (Kyle O’Neill) (D.I. 349).
47
Trial Tr., Dec. 17, 2020 AM, at 8 (Brian Stewart).
48
Id. at 12.
49
Id. at 13.
50
Id.
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did not buy the sand, and Smart Sand provided no such analysis.51
At bottom, Mr. Stewart confirmed that $40/ton shortfall figure was “a
reasonable compromise based on the information that [US Well] had at the time.”52
Next, Nathan Houston, US Well’s former Chief Operating Officer and Chief
Executive Officer testified about his efforts to renegotiate the amended PPA with
Smart Sand to “lower the sand and the price point [to] where [US Well] could be
competitive with it, reduce volumes, come up with some alternative . . . solutions to
running the sand.”53
US Well then called its expert Brian Savisky, principal research analyst at IHS
Markit, to present his historic and forecasted market projections for the price of frac
sand.54 Mr. Savisky confirmed that the “average pricing for northern white sand
post-October 2018 [did not] reach $40 per ton[.]”55
US Well called a second expert witness, Dana Trexler, managing director at
Stout.56 According to Ms. Trexler, Smart Sand’s reasonably foreseeable lost profits
51
Id. at 15-16.
52
Id. at 19.
53
Trial Tr., Dec. 17, 2020 PM, at 9, 24 (Nathan Houston) (D.I. 325).
54
Id. at 57, 72, 77 (Brian Savisky).
55
Id. at 78.
56
Trial Tr., Dec. 18, 2020, at 14 (Dana Trexler) (D.I. 346).
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were estimable at the time of contracting, and the amount Smart Sand claims it is
owed was not a reasonable estimate of those lost profits.57 Ms. Trexler asserted that
Smart Sand “had the necessary components available to them to perform an analysis
which would have allowed them to estimate potential lost profits under the PPA at
any point in time.”58 Ms. Trexler opined that, using certain calculations under her
read of the Agreements, US Well would owe Smart Sand an incomprehensible sum
of $105,295,290.59
Ms. Trexler testified that Smart Sand’s retained product had value and
calculated the value of that sand at different points in time.60 Additionally, in Ms.
Trexler’s view, the $40/ton “fee does not approximate estimable lost profits at the
time of entering into the contract.”61
Finally, Dr. Becker was recalled by Smart Sand to rebut Ms. Trexler’s
opinions on “the reasonableness of the contractual liquidated damages under the
PPA, calculating lost profit damages under the PPA and RUA, and/or analysis of
57
Id. at 19-20.
58
Id. at 29.
59
Id. at 35.
60
Id. at 48.
61
Id. at 54-55.
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other frac sand market economics.”62
III. GENERAL LEGAL PRINCIPLES
Though the Court sits without a jury, it has applied the same principles of law
in its deliberations and consideration of each individual claim and counterclaim that
it would have more formally instructed a jury to follow. The Court may highlight
here some of those that are most applicable to this particular case. But the fact that
some particular point or concept may be mentioned here should not be regarded as
any indication that the Court did not—during its deliberations—consider all legal
principles applicable to this case and the parties’ claims and counterclaims.
In reaching its verdict, the Court has examined the joint exhibits submitted
and considered the testimony of all witnesses, both on direct and cross. The Court
has also considered the applicable Delaware case law that has defined the legal
precepts applicable here. The Court has applied the Delaware Rules of Evidence to
the testimony and exhibits and only used for its deliberation that which would be
allowed under those rules—consistent with the Court’s knowledge of those rules and
the specific rulings that may have been made and articulated both pre-trial, during
the trial proceedings, and post-trial. And, of course, the Court has considered each
party’s respective arguments on the weight to be accorded the testimony and
evidence.
62
Id. at 163-64 (Stephen Becker – Recalled).
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The Court then reviewed and applied the very instructions that it would give
a jury in these circumstances.63
In this particular case, Smart Sand carries the burden of proof by a
preponderance of the evidence64 on Counts IV and V of its Complaint.
IV. FINDINGS AND VERDICT
At trial there were three central issues to be resolved: (1) whether PPA Section
1.5’s take-or-pay provision is enforceable, (2) whether Smart Sand is entitled to
damages based on US Well’s breach of the RUA, and (3) whether either party is
entitled to attorneys’ fees or prejudgment interest.65 In its post-trial briefing, US
Well stated that it is no longer pursuing its single remaining counterclaim (Breach
of the PPA confidentiality provision) (Counterclaim I).66
So the only claims left for the Court to resolve are Smart Sand’s
breach-of-contract claims aimed at US Well’s non-payment of the final invoice and
railcar usage fees (Counts IV and V).
63
See, e.g., Del. Super. Ct. Civ. Pattern Jury Instr. 4.1 (Burden of Proof by a Preponderance of
the Evidence); id. at 4.2 (Evidence Equally Balanced); id. at 23.1 (Evidence—Direct or
Circumstantial); id. at 23.9 (Credibility of Witnesses—Weighing Conflicting Testimony); id. at
23.10 (Expert Testimony).
64
See, e.g., Reynolds v. Reynolds, 237 A.2d 708, 711 (Del. 1967) (defining preponderance of the
evidence); Oberly v. Howard Hughes Med. Inst., 472 A.2d 366, 390 (Del. Ch. 1984) (same).
65
USW Post-Trial Br. at 5-6, Jan. 29, 2021 (D.I. 330).
66
Id. at 3 n.3; see USW’s Second Am. Countercl. ¶¶ 23-28, Nov. 7, 2019 (D.I. 113).
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A. THE PPA’S TAKE-OR-PAY PROVISION SETS OUT VALID LIQUIDATED
DAMAGES AND IS, THEREFORE, ENFORCEABLE.
PPA Section 1.5(c) states:
Buyer shall pay to Smart Sand on or before the date that is thirty (30)
days following the end of the Term an amount (the “Cumulative
Shortfall Payment”') equal to $40 multiplied by the difference
between the aggregate Minimum Tons per Year during the Term (i.e.
2,000,000 tons) and the actual tons of Products (including any tonnages
of substituted 60/ 140 (aka 100 mesh) at the ratio and proportion set
forth in Section 1.1 and Appendix B) purchased by the Buyer during
the Term (“Cumulative Purchased Tons”) plus tons of Replacement
Products (the resulting amount, the “Cumulative Net Tons”) minus
any True Up Payment paid during the Term minus any Unused
Reservation Charge for the final Contract Year of the Terns (i.e. (i)
Cumulative Net Tons = 2,000,000 - (Cumulative Purchased Tons + tons
of Replacement Products), and (ii) Cumulative Shortfall Payment =
(Cumulative Net Tons * $40) - prior True Up Payments - Unused
Reservation Charge for the final Contract Year of the Term. If the
Cumulative Net Tons is equal to or less than 0, then the Cumulative
Shortfall Payment shall be $0.67
US Well says that PPA Section 1.5(c)’s take-or-pay provision is not a (valid)
liquidated damages clause, but instead simply constitutes choices of alternative
performance—or, ultimately, an unenforceable penalty.68 Smart Sand maintains that
Section 1.5(c) is a valid liquidated damages clause.69
US Well carries the burden of demonstrating that this questioned provision is
67
JX-3 (emphasis in original) (composite of Amended and Restated PPA and First Am. PPA).
68
USW Post-Trial Br. at 11.
69
SSI Post-Trial Br. at 1, Jan. 29, 2021 (D.I. 332).
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not a valid liquidated damages clause supporting the sum Smart Sand claims is now
due thereunder.70
First, US Well turns to section 8:32 of White & Summers’s Treatise on the
Uniform Commercial Code’s discussion of take-or-pay contracts to the effect that a
majority of courts have found the “pay” provision in take-or-pay contracts to be only
a form of alternative performance a party might choose.71 Yet White & Summers
continue that “it is often difficult to distinguish between a provision for alternative
performance and an agreed remedy.”72
So, US Well cites to S.H. Deliveries, Inc. v. TriState Courier & Carriage,
Inc.73 and Brazen v. Bell Atlantic Corp.,74 to propose that for a provision to constitute
liquidated damages, it must be specifically stated.75 And US Well suggests the
70
See S.H. Deliveries, Inc. v. TriState Courier & Carriage, Inc., 1997 WL 817883, at *3 (Del.
Super. Ct. May 21, 1997) (“[T]he Court first notes that the presumption is in favor of the validity
of a liquidated damages provision . . . . It is up to the party opposing the liquidated damages clause
to demonstrate that it is invalid and unenforceable.” (citations omitted)); see also Princess Hotels,
Int’l Inc. v. Del. State Bar Ass’n, 1997 WL 817853, at *3 (Del. Oct. 29, 1997) (“Without defendant
putting forth anything to attack the liquidation clause, the presumption in favor of the liquidated
damages provision prevails.”).
71
1 WHITE, SUMMERS & HILLMAN, UNIFORM COMMERCIAL CODE § 8.32 n.16 (6th ed. 2020)
(hereinafter, “WHITE & SUMMERS”) (collecting cases); see also USW Post-Trial Br. at 12.
72
WHITE & SUMMERS § 8:32.
73
1997 WL 817883 (Del. Super. Ct. May 21, 1997).
74
695 A.2d 43 (Del. 1997).
75
USW Post-Trial Br. at 13-14.
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absence of words like “breach,” “remedy,” or “damages” means that Section 1.5(c)
is not a liquidated damages provision but instead merely defines an alternative
performance.76 But, as Smart Sand rightly contends, no set incantation is needed to
define whether a contract’s language constitutes a liquidated damages clause.77
US Well also cites White & Summers to suggest that a
material-breach-remedy provision elsewhere in a contract suggests that a
take-or-pay provision is not a recognizable liquidated damages clause.78 US Well
points to PPA Section 7.4 as the remedy for a material breach, but to little avail.79
Both parties turn to other courts to support their preferred interpretation of the
PPA’s take-or-pay clause. US Well cites Roye Realty & Developing, Inc. v. Arkla,
Inc., where the Oklahoma Supreme Court found that a contested take-or-pay contract
76
USW Post-Trial Br. at 15-16.
77
SSI Post-Trial Ans. Br. at 7, Feb. 12, 2021 (D.I. 340) (citing W & G Seaford Assocs., L.P. v.
E. Shore Mkts., Inc., 714 F. Supp. 1336, 1343 (D. Del. 1989)). For instance, in Delaware Bay
Surgical Services, P.C. v. Swier, the Delaware Supreme Court upheld the finding of a liquidated
damages provision that explicitly used the word “penalty.” 900 A.2d 646, 650-51 (Del. 2006).
78
USW cites to cases listed in WHITE & SUMMERS § 8:32 to show that courts have interpreted
“take-or-pay” to mean alternative performance. Conclusive in that listing is whether remedies for
breach are addressed elsewhere in the contract. And here, USW says they are addressed in PPA
Sections 7.2, 7.3, and 7.4. USW Post-Trial Br. at 12.
79
Id. at 15 (citing PPA § 7.4). Of particular relevance, PPA Section 7.4 states that “in the event
Buyer terminates this Agreement pursuant to Section 7.2, Buyer shall pay, within thirty (30) days
of the effective date of termination, all amounts due and owing to Smart Sand for Products
delivered by Smart Sand prior to the effective date of termination, payment for any Outstanding
Deferred Tons at the rate of $40 per ton, and all other amounts payable by Buyer hereunder that
have accrued but remain unpaid at the effective date of termination. . . .”
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didn’t provide a proper measure of damages.80 Smart Sand counters that Roye Realty
is of no use because the court there decided the narrow issue of the measure of
damages for anticipatory repudiation—and here there was no anticipatory
repudiation because the PPA had expired by its own terms.81 To this, Smart Sand
adds Jeddo Coal Co. v. Rio Tinto Procurement (Singapore) Ptd Ltd., where the
federal district court found that a take-or-pay clause was indeed an enforceable
liquidated damages provision.82
1. PPA Section 1.5 is a Valid Liquidated Damages Provision.
US Well insists that PPA Section 1.5(c) is not a valid liquidated damages
provision.83 Smart Sand says it is.84 Again, as liquidated damages are presumed
valid, US Well, the party contesting the provision, has the burden of proof.85
“[L]iquidated damages, by definition, are damages paid in the event of a
80
Id. at 17 (citing Roye Realty & Dev’g, Inc. v. Arkla, Inc., 863 P.2d 1150, 1154 (Okla. 1993)
(holding that “[b]ecause the provisions of the UCC apply to gas purchase contracts . . . the measure
of damages for anticipatory repudiation of both the take and the pay obligations in a take-or-pay
gas purchase contract is the difference between the market price at the time when the aggrieved
party learned of the repudiation and the unpaid contract price.” (citations omitted))).
81
SSI Post-Trial Ans. Br. at 11-13.
82
Id. at 10 (citing Jeddo Coal Co. v. Rio Tinto Procurement (Singapore) Ptd Ltd., 2020 WL
3474078 (M.D. Pa. Feb. 10, 2020)).
83
USW Post-Trial Ans. Br. at 2, Feb. 12, 2021 (D.I. 336).
84
SSI Post-Trial Br. at 1.
85
See supra note 70 & accompanying text.
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breach of contract.”86 Delaware Courts routinely enforce liquidated damages
provisions when damages are uncertain at the time of contracting and when the
liquidated damages due are reasonable.87 The role of liquidated damages is to
compensate, not to punish; if such a provision is aimed at “punish[ing] the breaching
party or ensur[ing] performance, the provision is void as a penalty.”88 As a part of
its liquidated-damages-vs.-penalty analysis, a court should figure out the parties’
intent when contracting.89
Delaware courts engage a two-step examination to determine whether a
liquidated damages provision is valid, or whether it represents a penalty and is thus
void.90 The first inquiry is whether “damages were uncertain” at the time of
86
Brazen, 695 A.2d at 47 (citations omitted); S.H. Deliveries, 1997 WL 817883, at *2
(“Liquidated damages are a sum to which the parties to a contract have agreed, at the time of
entering into the contract, as being payable to satisfy any loss or injury flowing from a breach of
their contract. It is, in effect, the parties’ best guess of the amount of injury that would be sustained
in a contractual breach, a way of rendering certain and definite damages which would otherwise
be uncertain or not easily susceptible of proof.” (citation omitted)); see generally Unbound
Partners Ltd. P’ship v. Invoy Holdings Inc., 2021 WL 1016442, at *9-11 (Del. Super. Ct. Mar. 17,
2021) (summarizing applicable standards).
87
E.g., Donegal Mut. Ins. Co. v. Tri-Plex Sec. Alarm Sys., 622 A.2d 1086, 1089 (Del. Super. Ct.
1992); Lee Builders, Inc. v. Wells, 103 A.2d 918, 919 (Del. Ch. 1954).
88
W & G Seaford, 714 F. Supp. at 1347 (citation omitted).
89
Swier, 900 A.2d at 650 (“The validity of a liquidated damages provision involves a review of
the intent of the parties to the contract.”).
90
CRS Proppants LLC v. Preferred Resin Holding Co., LLC, 2016 WL 6094167, at *3 (Del.
Super. Ct. Sept. 27, 2016); Dow Chem. Canada Inc. v. HRD Corp., 909 F. Supp. 2d 350, 356 (D.
Del. 2012).
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contracting.91 The second discerns whether the liquidated damages sought are
reasonable.92 “To fail the second prong . . . the amount at issue must be
unconscionable or not rationally related to any measure of damages a party might
conceivably sustain.”93
If the contract-defined liquidated damages are found to be valid, the party
enforcing the liquidated damages provision need not establish its actual damages.94
And contrary to what US Well may think, any liquidated damages Smart Sand is
entitled to under the contract need not be offset by any potential value of any retained
sand.95
91
Dow Chem. Canada, 909 F. Supp. 2d at 356; CRS Proppants, 2016 WL 6094167, at *3 (“First,
are the reasonably-anticipated damages difficult to ascertain at the time of contracting because of
indefiniteness or uncertainty?” (citation omitted)).
92
Dow Chem. Canada, 909 F. Supp. 2d at 356; CRS Proppants, 2016 WL 6094167, at *3
(“Second, is the amount stipulated either a reasonable estimate of the future damages, or
reasonably proportionate to the damages that actually have been caused by the breach?” (citation
omitted)).
93
Dow Chem. Canada, 909 F. Supp. 2d at 358 (internal quotation marks and bracket omitted)
(quoting Brazen, 695 A.2d at 48).
94
W & G Seaford, 714 F. Supp. at 1348-49; S.H. Deliveries, 1997 WL 817883, at *2 (“It matters
not whether actual damages are proven, or that the liquidated damages are substantially larger than
the actual damages, so long as the liquidated damages were a reasonable estimate of the damages
which would be caused.” (citations omitted)).
95
Contra USW states that any liquidated damages provision that gives a “windfall” to the
non-breaching party is void. USW Post-Trial Br. at 19 (“When a purported liquidated damages
provision would leave the non-breaching party with a windfall, it is void as penalty.”). To avoid
a windfall, USW suggests, the value of the retained product—the unmined sand—must be
calculated into the damages equation. Id. at 20. Not so. See Princess Hotels, 1997 WL 817853,
at *3 (“[T]he duty to mitigate does not arise where liquidated damages exist.”).
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a. Reasonably expected damages were difficult to ascertain at the time
of the parties’ contracting because of indefiniteness or uncertainty.
US Well says that potential damages occasioned by any breach could be
reasonably determined at the time the PPA was signed.96
Smart Sand disagrees97 and points to the PPI table in Appendix C, Section 2
of the PPA to show that the quarterly pricing of frac sand was dependent on the price
of oil, which itself is volatile.98 Additionally, because US Well could choose the
sand grades and make substitutions, there were more variables to consider, and thus
greater uncertainty.99 According to Smart Sand, oil prices and PPI could never be
predicted with requisite certainty.100
Smart Sand cites to CRS Proppants LLC v. Preferred Resin Holding Company
LLC, where this Court found a valid liquidated damages clause, in part, because the
damages there were so difficult to ascertain.101 In CRS Proppants, the Court found
96
USW Post-Trial Br. at 27.
97
SSI Post-Trial Br. at 24 (“[P]otential damages under the PPA were impossible to ascertain at
the time of contracting.”).
98
Id. at 7, 25.
99
Id. at 27.
100
SSI Post-Trial Ans. Br. at 25, 27 (“[T]he evidence at trial established that future oil prices, PPI
table, product mix, term length, and SSI’s future product costs were all unknowns at the time of
contracting and could dramatically impact actual damages over time.” (emphasis in original)).
101
2016 WL 6094167, at *3-4 (Del. Super. Ct. Sept. 27, 2016).
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that even though there was some explicit pricing in the contract for a certain segment
of the contract period, damages were still uncertain;102 here, Smart Sand argues, the
PPA lays out no explicit pricing and is thus more uncertain than that in CRS
Proppants.103 Distinguishing CRS Proppants, US Well points out that there this
Court, in part, found the damages difficult to calculate at the time of contracting after
the sophisticated parties’ negotiated heavily; and here, in US Well’s view, there was
no negotiating between the parties.104
US Well relies on this Court’s earlier decision in First State Homes, Inc. v.
McCann, to suggest that “only a reasonable estimate or forecast [of anticipatable
damages] is required” to find a liquidated damages clause invalid.105 US Well then
suggests that Dr. Becker and Dr. Trexler’s testimony that a “reasonable estimation”
of damages at the time of contracting was possible.106
But US Well, as it must, heavily stresses the wording “reasonable estimate”
while largely ignoring the specifics of McCann (or other cases) in which that phrase
102
Id.103
SSI Post-Trial Br. at 28.
104
USW Post-Trial Br. at 29.
105
Id. at 27-28 (citing First State Homes, Inc. v. McCann, 1999 WL 742974, at *2 (Del. Super.
Ct. May 28, 1999)).
106
Id. at 34 n.155 (“Becker (SSI) admitted it was possible, in May 2016, to reasonably estimate
SSI’s damages from a USW PPA breach and Trexler agreed.”).
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is coined. McCann looked at damages flowing from the breach of a general
contractor’s agreement to finish up six already substantially completed townhomes,
something far easier to forecast107 than the long-term pricing of a specialty product
like frac sand108 that is dependent on myriad domestic and international market
factors—including, for one, the seemingly daily fluctuation in oil prices.
The purpose of the four-to-seven-year PPA was to create certainty in what
was an emergent and booming frac sand market.109 But even with the limited
certainty that long-term contract might foster, both parties acknowledged the sundry
variables and global pieces that affected the price and utility of this specialty product.
In doing so, they created a PPI table that was, in part, reliant on oil prices. As such,
the parties mitigated uncertainty as best they could, but the very existence of the PPI
107
McCann, 1999 WL 742974, at *2 (At the time of the contested agreement—that was to last
just a few weeks—the construction project was substantially complete and so any damages arising
from the builder’s subsequent failure to complete the project “were, in the Court’s view, damages
which were not particularly difficult to estimate or forecast.”).
108
See infra note 109.
109
See generally MARY ELLEN BENSON & ANNA B. WILSON, U.S. DEP’T OF INTERIOR & U.S.
GEOLOGICAL SURV., FRAC SAND IN THE UNITED STATES—A GEOLOGICAL & INDUSTRY OVERVIEW
1, available at https://pubs.usgs.gov/pdf/ofr20151107.pdf (last visited May 28, 2021) (observing
that a “new mineral rush [wa]s underway” in 2015 “for deposits of high-quality frac sand . . . a
specialized type of sand . . . injected into unconventional oil and gas wells during hydraulic
fracturing (fracking or hydrofracking) . . . [to] enhance[] petroleum extraction from tight (low
permeability) reservoirs” and noting that “[f]rac sand consists of natural sand grains with strict
mineralogical and textural specifications that act as a proppant” and “is a high-purity quartz sand
with very durable and very round grains.”).
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table shows the uncertainty inherent in this specific industry and contract.110
b. The damages required by PPA Section 1.5(c) are reasonable.
When addressing the second consideration—reasonableness—that informs
whether a contracted-for sum is a penalty or allowable liquidated damages, the Court
evaluates whether the subject damages are (i) unconscionable, or (ii) not rationally
related to a measure of damages.111
i. The Cumulative Shortfall Payment isn’t unconscionable.
Both Smart Sand and US Well agree that the language of Section 1.5(c) is
unambiguous.112 Each, however, urges a different interpretation of that same
language. Not unusual. And the Court need not suspect that contract language might
indeed be ambiguous merely because the parties dispute what it means.113
US Well suggests that “the only reasonable interpretation of [Section 1.5(c)]
110
See Dow Chem. Canada, 909 F. Supp. 2d at 357 (“It is hard to understand how damages for
the termination of a complex collaborative engineering project could be estimated with certainty
years before the details of the project itself were finalized.”).
111
Brazen, 695 A.2d at 48 (“[T]o fail the second prong . . . the amount at issue must be
unconscionable or not rationally related to any measure of damages a party might conceivably
sustain.”)
112
USW Post-Trial Br. at 21 (“Everyone agrees Section 1.5(c) is unambiguous. . . .”); SSI
Post-Trial Ans. Br. at 23.
113
E.g., Miramar Police Officers’ Ret. Plan v. Murdoch, 2015 WL 1593745, at *8 (Del. Ch. Apr.
7, 2015) (“That the parties dispute how to interpret a term does not render
the contract ambiguous.”). Indeed, ambiguity exists only when disputed provisions are “fairly or
reasonably susceptible to more than one meaning.” Alta Berkeley IV C.V. v. Omneon, Inc., 41 A.3d
381, 385 (Del. 2012) (citations omitted).
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is that the PPA obligates USW to pay all Prior Unpaid Invoices and the Final
invoice.”114 The main thrust of US Well’s argument is that the PPA includes no
express wording that would allow reduction of the CSP by sums included in previous
unpaid invoices.115 Thus, to US Well, the only way to read the PPA is that the unpaid
invoices and the CSP are both separately due—totaling approximately $105
million116—something both parties seem to agree is unreasonable.
Smart Sand argues that while not defined in the PPA, the ordinary meaning of
“cumulative” is such that the CSP would accumulate unpaid invoices for required
sand purchases into a single sum, not add some additional cumulative sum to those
previously unpaid invoices.117 Too, says Smart Sand, because the “cumulative”
nature of the CSP incorporates the unpaid invoices for all shortfall-related
obligations, it follows that the “paid invoices for shortfall-related obligations are
expressly deducted by the CSP.”118
114
USW Post-Trial Br. at 21 (emphasis in original).
115
Id.116
Id.117
SSI Post-Trial Ans. Br. at 17-18 (internal quotation marks omitted) (quoting Cumulative,
BLACK’S LAW DICTIONARY (11th ed. 2019)) (“When an amount is cumulative, that means it is
including all amounts previously added. . . . [F]or that reason, the CSP does precisely as its name
requires: it includes all the amounts set forth in prior unpaid invoices and combines them into the
CSP.”).
118
SSI Post-Trial Ans. Br. at 16 (emphasis in original).
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Section 1.5(c) provides an example of how the Cumulative Shortfall Payment
might be applied:
(i) Cumulative Net Tons = 2,000,000 - (Cumulative Purchased Tons +
tons of Replacement Products), and (ii) Cumulative Shortfall Payment
= (Cumulative Net Tons * $40) - prior True Up Payments - Unused
Reservation Charge for the final Contract Year of the Term. If the
Cumulative Net Tons is equal to or less than 0, then the Cumulative
Shortfall Payment shall be $0.
Read Smart Sand’s way, the Section 1.5(c) damages aren’t unconscionable;
given US Well’s read—with double-billing for reserved tons that were both untaken
and unpaid-for—the Section 1.5(c) damages are.
Under Delaware law, “[t]he proper construction of any contract is purely a
question of law.”119 “The objective [of interpretation] is to give full effect to the
parties’ mutual intent at the time of contracting.”120 In respecting that mutual intent,
the Court “read[s] a contract as a whole and . . . give[s] each provision and term
[purpose], so as not to render any part of the contract” superfluous.121 And “[w]hen
the contract is clear and unambiguous,” the Court “give[s] full effect to the
119
Exelon Generation Acquisitions, LLC v. Deere & Co., 176 A.3d 1262, 1266-67 (Del. 2017)
(internal quotation marks and ellipses omitted).
120
Bobcat N. Am., LLC v. Inland Waste Holdings, LLC, 2019 WL 1877400, at *5 (Del. Super. Ct.
Apr. 26, 2019) (second citation omitted) (citing Exelon, 176 A.3d at 1263); accord Salamone v.
Gorman, 106 A.3d 354, 367-68 (Del. 2014).
121
Kuhn Constr., Inc. v. Diamond State Port Corp., 990 A.2d 393, 396-97 (Del. 2010) (citation
omitted).
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plain-meaning of the contract’s . . . provisions.”122 “An unreasonable interpretation
produces an absurd result or one that no reasonable person would have accepted
when entering the contract.”123 As between two alternative interpretations—one
reasonable, one absurd—the Court is bound to follow the former.124
Of course, there is good reason for US Well to now press its extreme reading
of Section 1.5(c) with duplicate counting of shortfalls and a resulting nine-figure
damage total—the Court might be far more likely to find that unconscionable and
just relieve US Well of any shortfall obligation. But it is simply beyond belief that
that these sophisticated parties would consent to such a severe consequence.
The Court finds that the Cumulative Shortfall Payment is unambiguous: it
constitutes the accrued shortfall payments due during the life of the contract. So it
is not unconscionable.
ii. The damages are rationally related to a measure of damages.
US Well’s main contention here is that the parties never tried to “estimate
SSI’s damages from a USW Breach[,]” and that the $40/ton figure wasn’t resultant
122
Hallisey v. Artic Intermediate, LLC, 2020 WL 6438990, at *3 (Del. Ch. Oct. 29, 2020) (internal
quotation marks and citation omitted).
123
Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1160 (Del. 2010) (citations omitted).
124
E.g., Capella Holdings, LLC v. Anderson, 2017 WL 5900077, at *5 (Del. Ch. Nov. 29, 2017)
(citing Osborn ex rel. Osborn, 991 A.2d at 1160)).
-27-
of informed negotiations between the parties.125
The credible evidence is that US Well’s then-CEO Brian Stewart offered the
$40/ton shortfall payment in a November 2015 email during negotiations aimed at
amending the parties’ Master Product Purchase Agreement, and that Smart Sand
eventually accepted it.126 The fact that Smart Sand did not counter that shortfall
payment offer, “did not consider whether the amount was enforceable[,]” and
reportedly “never rejected a proposed [ ] make-whole fee as too high” is of little
moment.127 At bottom, US Well made an offer, Smart Sand accepted that offer, and
consideration to both parties supported their respective obligations thereunder.
Mr. Stewart did tell the Court that “he was simply trying to lower US Well’s
exposure from full purchase price to some less number, and he had no insight into
Smart Sand’s internal costs and never performed any analysis of what Smart Sand’s
actual damages might be in the event of breach.”128 But according to Mr. Stewart’s
own email, he knew the $40/ton shortfall rate would appease his Board.129 And
whatever his reason for landing on that figure, Mr. Stewart’s post hoc claim of
125
USW Post-Trial Br. at 30.
126
USW Post-Trial Ans. Br. at 14.
127
Id.128
Id. at 32.
129
JX-50.
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ignorance after the price of sand dropped adds nothing to US Well’s claim.
US Well points to contemporaneous contracts (Weatherford, /ton; Rice,
/ton; Liberty, /ton), to suggest that the $40/ton number was irrationally
high.130 US Well says that “variability alone (with zero explanation from SSI) shows
$40-per-ton is unreasonable.”131 But again, Mr. Stewart proposed it—a number that,
if nothing else, appeased US Well’s board—and Smart Sand accepted it.
One final point, that $40/ton shortfall price was almost smack in the middle
of the pricing grid the parties used for sand products under the PPA.132
All in all, the estimate of damages at the time of contracting could be seen to
derive from a number of reliable sources: (1) Purchaser US Well’s own assessment
of worth as evidenced by the fact that value was first proposed by its then-CEO;
(2) the fact that it represented a cost below the approximately $45/ton price for
delivered sand that was being invoiced to US Well when the amended PPA was
executed;133 and (3) the fact that $40 falls roughly in the mid-range of all potential
per-ton pricing applicable to the May 2016 agreement.134 Hence, the $40 charge per
130
USW Post-Trial Br. at 33.
131
Id.
132
See Trial Tr., Dec. 14, 2020, at 97-99 (Mr. Beckleman explaining the PPA’s pricing grid); id.
at 99 (“So, again, it could be at 25 to 30 on the low end and again on high end depending on the
product, you get up to $66 a ton.”).
133
Trial Tr., Dec. 15, 2020, at 105.
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shortfall ton bears a rational relationship to a measure of damages the parties could
have estimated Smart Sand might conceivably sustain if US Well did not follow
through with its sand purchase obligations.
B. US WELL IS LIABLE FOR THE DAMAGES BARGAINED-FOR AND REQUIRED
UNDER PPA SECTION 1.5.
No doubt, US Well came to regret its agreement to certain PPA pricing terms.
But the Court “will not disturb a bargain because, in retrospect, it appears to have
been a poor one.”135 “Parties have a right to enter into good and bad contracts, the
law enforces both.”136 And when it comes to liquidated damages, there is a
summer’s afternoon of daylight between bad and unconscionable.
In determining whether Section 1.5 of the PPA constitutes a valid liquidated
damages provision, the Court has considered whether potential damages were
uncertain at the time of contracting, and whether the liquidated damages were
rationally related to any reasonable measure of damages or were unconscionable.
Having found that the fluctuating price of sand made damages uncertain to determine
at the time of contracting, and that the liquidated damages reflect a
134
See Trial Tr., Dec. 14, 2020, at 97-99.
135
W. Willow-Bay Ct., LLC v. Robino-Bay Ct. Plaza, LLC, 2007 WL 3317551, at *9 (Del. Ch.
Nov. 2, 2007) (citation omitted), aff’d, 2009 WL 4154356 (Del. Nov. 24, 2009).
136
Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010); Murdoch, 2015 WL 1593745, at *9
(“Parties to contracts governed by Delaware law are free to make bad bargains. . . .” (internal
quotation marks and citations omitted)).
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US Well-recommended sum that is rationally related to a measure of damages and
not unconscionable, the Court finds that Section 1.5 of the PPA is a valid liquidated
damages provision.
As such, US Well is liable to Smart Sand for the cost of the 1,206,795 tons of
frac sand US Well did not purchase and take from Smart Sand under the PPA.137
C. SMART SAND IS NOT ENTITLED TO DAMAGES BASED ON US WELL’S BREACH
OF THE RUA.
Both Smart Sand and US Well have spent little time discussing the RUA. In
the meager effort devoted to it, Smart Sand claims that, because of US Well’s breach,
the total amount of the contract ($5.8 Million) is due.138 Specifically, Smart Sand
states that the damages should reflect the ‘expected’ payment to Smart Sand had the
contract been fulfilled.139
In Delaware, when awarding expectation damages, lost profits must be
calculated with reasonable certainty.140 And a Delaware court “may not set damages
based on mere speculation or conjecture where a plaintiff fails adequately to prove
damages.”141
137
The Court finds that Dr. Becker’s calculations accurately reflect the sums of purchased and
retained sand. See Trial Tr., Dec. 16, 2020, at 193 (Stephen Becker).
138
SSI Post-Trial Br. at 36-37 (setting forth Smart Sand’s single paragraph RUA argument).
139
SSI Post-Trial Ans. Br. at 35.
140
E.g., SIGA Techs., Inc. v. PharmAthene, Inc., 132 A.3d 1108, 1138 (Del. 2015).
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So, has Smart Sand properly proven damages suffered under the RUA? In its
post-trial brief, Smart Sand dedicates just a few lines to the issue and simply says
that “USW stopped paying its bills as of September 1, 2018 and therefore breached
the RUA. USW is liable to SSI for $5,850,000 for monthly Railcar Payments of
$292,500 for the 20 months between September 2018 and April 2020.”142 There was
scant testimony on the RUA and no explanation of its implementation or actual
execution during the Smart Sand-US Well business relationship. And nowhere does
Smart Sand provide a comprehensible explanation of how its calculation matches
any actual or expectation losses caused by the breach it alleges.
Not surprisingly, US Well contends that Smart Sand has not proven either a
breach or damages due under the RUA, and so Smart Sand is entitled no damage
award on this claim.143 The Court agrees.
At the very least, Smart Sand’s failure to prove damages resulting from the
alleged RUA breach is fatal to its claim, and thus Smart Sand is not entitled to
monetary damages on this claim.144
141
eCom. Indus., Inc. v. MWA Intel., Inc., 2013 WL 5621678, at *42 (Del. Ch. Sept. 30, 2013)
(internal quotation marks and citations omitted).
142
SSI Post-Trial Br. at 36-37 (internal citations omitted).
143
USW Post-Trial Br. at 39-40.
144
Beard Rsch., Inc. v. Kates, 8 A.3d 573, 613 (Del. Ch. 2010) (“Nevertheless, when acting as the
fact finder, this Court may not set damages based on mere ‘speculation or conjecture’ where a
plaintiff fails to adequately prove damages.” (first quoting Medek v. Medek, 2009 WL 2005365, at
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D. SMART SAND IS ENTITLED TO PREJUDGMENT INTEREST, BUT NOT
ATTORNEY’S FEES.
Smart Sand asks for attorneys’ fees and prejudgment interest citing Section 2
of the PPA.145 But Smart Sand fails to identify the specific PPA language requiring
the payment of either attorneys’ fees or prejudgment interest. US Well opposes
Smart Sand’s demand contending that Smart Sand has neither cited the contractual
language nor offered support for awarding those fees and interest.146
As Smart Sand points to no specific PPA language calling for an award of
attorneys’ fees, the Court will not deviate from the American rule.147 Concerning
prejudgment interest, a non-breaching party is entitled to prejudgment interest as a
matter of right, and that balance will not be disturbed.148
*12 n.78 (Del. Ch. July 1, 2009); then citing Henne v. Balick, 146 A.2d 369, 396 (Del. 1958))).
145
SSI Post-Trial Br. at 40 n.173.
146
USW Post-Trial Br. at 38.
147
E.g., Mahani v. Edix Media Grp., Inc., 935 A.2d 242, 245 (Del. 2007); see Sternberg v.
Nanticoke Mem’l Hosp., Inc., 62 A.3d 1212, 1218 (Del. 2013) (“It has been long practice of
American courts to enforce the so-called ‘American Rule’—which requires each party to pay his
or her own legal costs, even the prevailing party.” (citations omitted)); see also Mrs. Fields Brand,
Inc. v. Interbake Foods LLC, 2018 WL 300454, at *2 (Del. Ch. Jan. 5, 2018) (noting the Court of
Chancery has applied the “predominance in the litigation” standard to prevailing-party contract
provisions; that “[t]o achieve predominance, a litigant should prevail on the case’s chief issue”;
and, that there are occasions where “no party may be regarded as having prevailed.” (internal
quotation marks and citations omitted)).
148
Brandywine Smyrna, Inc. v. Millennium Builders, LLC, 34 A.3d 482, 486 (Del. 2011) (“[I]n
addition to the principle that prejudgment interest in Delaware cases is awarded as a matter of
right, the general rule is that interest accumulates from the date payment was due the plaintiff,
because full compensation requires an allowance for the detention of the compensation awarded
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Thus, the Court awards Smart Sand prejudgment interest on Count IV (breach
of the PPA), and both parties will pay their own attorneys’ fees.
V. CONCLUSION
While this judgment results in a substantial payment to Smart Sand, that is
what the parties bargained for via the PPA. In the best of times, the deal could have
resulted in a substantial profit for US Well as it used the product for its customers
energy ventures. But the worst of times came, resulting in a substantial downturn in
sand prices, and now, US Well’s substantial loss under the PPA. These were
sophisticated (and represented) parties that realized the risks associated with such a
purchase contract, yet still pursued it. The Court can’t now rescue one of those
parties from the deal it penned when it foresaw significant gain simply because its
hopes evaporated due to world and market forces.
and interest is used as a basis for measuring that allowance.” (internal quotation marks and citation
omitted)).
-34-
VERDICT AND JUDGMENT
- Count IV (Breach of Contract for Non-Payment of the Final Invoice):
For Smart Sand
- Count V (Breach of Contract for Non-Payment of the RUA Invoice):
For US Well
Additionally, Smart Sand is entitled to prejudgment interest on Count IV, but
is not entitled to Attorneys’ Fees.
The parties shall confer and, within 15 days, submit to the Court a proposed
form of Order of Final Judgment consistent with these findings and verdicts.
IT IS SO ORDERED.
_
Paul R. Wallace, Judge
Original to Prothonotary
cc: All counsel via File & Serve
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