The Chemours Company TT, LLC v. ATI Titanium LLC ( 2016 )

IN THE SUPERIOR COURT
OF THE STATE OF DELAWARE
THE CHEMOURS
COMPANY TT, LLC
Plaintiff,
V_.,; C.A. No. Nl5C-O3-083 WCC CCLD
ATI TITANIUM LLC,
§/&/L/\/\/\/\/\_/\/
Defendant.
Submitted: June 3, 2016
Decided: July 27, 2016
Plaintiff"s Motion for Judgment on the Pleadings - DENIED
MEMORANDUM OPINION
Miohael P. Kelly, Esquire, Andrew S. Dupre, Esquire, McCarter & English LLP,
405 N. King Street, 8“‘ Floor, Wilmington, DE 19801. Attorneys for Plaintiff.
Neal J. Levitsky, Esquire, Seth A. Niederman, Esquire, Fox Rothschild LLP, 919
North Market Street, Suite 300, Wilmington, DE 19899-2323. Attorneys for
Defendant.
J ay D. Marinstein, Esquire, Patrick L. Abramowich, Esquire, Fox Rothschild LLP,
500 Grant Street, Suite 2500, Pittsburgh, PA 15219. Of Counsel Attorneys for
Defendant.
CARPENTER, J.
Before the Court is a Motion for Judgment on the Pleadings filed by
Plaintiff/Counterclaim Defendant, The Chemours Company TT, LLC
("Chemours"). The Motion relates to complex commercial litigation initiated by
Chemours in March 2015 against Defendant/Counterclaim Plaintiff, ATI Titanium
LLC ("ATI"). ATI has asserted various defenses and counterclaims in response to
Chemours’ Complaint. Having reviewed and considered the pleadings filed by the
parties, in addition to briefing and oral argument in connection with the Motion,
the Court will deny Chemours’ Motion for Judgment on the Pleadings.
I. BACKGROUND
This dispute arises out of a long-term titanium tetrachloride ("TiCl4") supply
agreement between Chemours and ATI ("Supply Agreement").l Chemours
manufactures titanium dioxide ("TiOz") pigment at its production facility in New
Johnsonville, Tennessee.z ATI operates a titanium sponge plant in Rowley, Utah. 3
TiCL, is a necessary component of titanium sponge and, in 2005, ATI
approached Chemours about the possibility of purchasing its TiCl4 requirements
l l’l. Compl. 11 l2;f)ef. Countercl. 1111 4-5. ATI and E.I. DuPont de Nemours and Company
("DuPont") were the original parties to the Supply Agreement. The Supply Agreement was
assigned by DuPont to Chemours on Februa.ry 18, 2015. As a result of the assignment, Chemours
agreed to assume DuPont’s liabilities and obligations relating to the Supply Agreement DuPont
and Chemours are referred to collectively throughout this Opinion as "Chemours." Pl. Compl. 11
13; Def. Countercl. 11 5.
2 Pl. Compl. 11 7; Def. Answ. 11 7.
3 Def. Countercl. 1[ 3.
has no legal basis to require that ATI pay the amount sought in the Complaint."g
Additionally, ATI counterclaims for breach of contract, and altematively,
breaches of the obligation to act in good faith under the Delaware Uniform
Commercial Code ("UCC") and/or the implied covenant of good faith and fair
dealing, violation of 6 Del. C. § 2-305(2), and fraudulent inducement. ATI also
seeks a declaration from the Court that:
(a). . .Chemours’ calculation of the Chlorine Price and Chlorine Component
Adjustments beginning. . .effective January l, 2013 through the present has
breached and/or violated (i) the Supply Agreement, (ii). .. 6 Del. C. § 2-
305(2), (iii) ...[the] obligation of good faith under the Delaware
Commercial Code, and/or (iv) the implied duty of good faith and fair
dealing;
(b). . .ATI does not owe Chemours any money for [TiCl4] supplied. . .from
January l, 2013 to the present; and
(c) ...for the remaining term of the Supply Agreement, with respect to the
Chlorine Price. . ., Chemours may charge ATI no more than the market
prices that Chemours can obtain from offsite third-party chlorine suppliers
in an arm’s length negotiation (including reasonable freight costs to
the. . .Production Facility)."”
Chemours answered ATI’s Counterclaim on November l9, 2015. Discovery in
this matter is ongoing.
48 Def. Answ. ll 32.
49 Def. Countercl. at 2 (prayer for relief).
ll
On January 20, 2016, Chemours filed the instant Motion for Judgment on
the P1eadings pursuant to Superior Court Civil Rule l2(c). ATI submitted a brief
opposing Chemours’ request for judgment on the pleadings on February 26, 2016.
A hearing was held on March 24, 2016, at the conclusion of which the Court
reserved decision on the Motion.
II. STANDARD OF REVIEW
Pursuant to Superior Court Civil Rule 12(c), any party may move for
judgment on the pleadings after the pleadings are closed but within such time as
not to delay trial.§° However, "[t]he standard for granting a motion for final
judgment on the pleadings is stringent," 51 and the motion will be denied unless it
is shown that no material issues of fact exist and the movant is entitled to
judgment as a matter of law.” Importantly, a Court considering a motion for
judgment on the pleadings must "view the facts pleaded and the inferences to be
drawn from such facts in a light most favorable to the non-moving party."” Where
50 Super. Ct. Civ. R. 12(c).
51 See Artisans’Bank v. Seafora' IR, LLC, 2010 WL 2501471, at *1 (Del. Super. June 21, 2010).
52 See Desert Equities, Inc. v. Morgan Stanley Leveragea’ Equity Funa', II, L.P., 624 A.2d 1199,
1205 (Del. 1993).
53 See ia'. (citing Warner Commc'ns Inc. v. Chris-Craft Indus., Inc., 583 A.2d 962 (Del. Ch.
1939), ajj"d, 567 A.zd 419 (Del. 1989)).
12
a document is integral to the pleadings, the Court may consider it in deciding a
Rule l2(c) motion without converting it to one for summary judgment.§"
III. DISCUSSION
Chemours contends judgment on the pleadings is appropriate because (l)
both parties assert that the Supply Agreement is unambiguous; (2) "ATI’s
overaggressive approach to non-party discovery is damaging Chemours’
commercial relationships, for a case that can be readily adjudicated on the
pleadings;" and (3) ATI’s fraud claim fails to meet the requirements of Superior
Court Civil Rule_ 9(bl and is "ripe for dismissal."” ATI responds that the Supply
Agreement is silent regarding on-site chlorine and that the definition of Chlorine
Price is, at a minimum, ambiguous.$é Additionally, ATI asserts that, even if
Chemours was allowed to use on-site chlorine under the Supply Agreement, ATI
has properly alleged that Chemours engaged in fraudulent conduct and breached
its good faith obligations under the UCC and the implied covenant of good faith
and fair dealing.” ATI further maintains that the discovery adduced to date
provides substantial support for its claims and characterizes Chemours’ "mid-
54 See, e.g., Wal-Mart Stores, Inc. v. AIG Lzfe Ins. Co., 860 A.Zd 312, 320 (Del. 2004));.-_
55 Pl. Mot. for J. at 3.
56 Def. Opp’n to Pl. Mot. for J. at 2-3.
57 Id. at 3.
13
discovery Motion [a]s an attempt to shield. . .key evidence from the Court’s
consideration."” As a result, ATI asks that the Court deny the instant Motion.
A. Breach of Contract
Chemours maintains this matter is ripe for adjudication under Rule l2(c)
because both parties acknowledge that the Supply Agreement is "unambiguous."”
In Delaware, "judgment on the pleadings is a proper framework for enforcing
unambiguous contracts because there is no need to resolve material disputes of
fact."“° The issue for the Court, then, is to decide whether the Supply Agreement
"is in any way ambiguous, by determining whether the ‘provisions in controversy
are reasonably or fairly susceptible of different interpretations or may have two or
more different meanings. "’6‘
Under the express language of the Supply Agreement, Chemours agreed to
sell and ATI promised to purchase certain quantities of TiCl4 at a price which
included an adjustable Chlorine Component. The Chlorine Component represented
»F.;t; f
59 Pl. Reply Br. at 2-3.
60 Aveta Inc. v. Bengoa, 2008 WL 5255818, at *2 (Del. Ch. Dec. ll, 2008) (quoting Lz`llis v. AT
& T Corp., 904 A.2d 325, 330 (Del. Ch. 2006)).
6' See Lz`llis v. AT & T Corp., 904 A.2d at 330 (quoting Rhone-Poulenc Basic Chems. v. American
Motorists Ins., 616 A.2d ll92, 1196 (Del. 1992). See also Gore v. Al Jazeera Am. Hldgs. I, Inc.,
2015 WL 4778339, at *6 (Del. Ch. Aug. 13, 20l5) ("Acc0rding to the law ofDelaware, . . .the
Court will give binding effect to contract language where that language is plain and
unambiguous. Contract language is ambiguous only where it is ‘susceptible to two or more
reasonable interpretati0ns. "’).
l4
28 percent of the Initial Base Price, or the price of TiCl4 on the date of the Supply
Agreement’s execution, and would be adjusted semiannually based on the price of
chlorine to Chemours.62 The Supply Agreement defines "Chlorine Price" as:
[T]he weighted average price of chlorine delivered to [Chemours’s New
Johnsonville facility] and actually charged to [Chemours] by its suppliers
over the previous six (6) months. . .F.O.B. [Chemours’s] facilities (as
distinguished from contract prices for chlorine) plus average freight costs to
the [New Johnsonville facility].63
According to Chemours, the language "actually charged" unambiguously
identifies Chlorine Price as the actual price paid by Chemours to its suppliers,
without any reference to market pricing and without prescribing certain suppliers
or modes of delivery.64 As such, Chemours asserts that it properly applied the
invoices it received from OxyChem to the Chlorine Price and ATI’s refusal and
failure to pay the full TiCl4 purchase price as calculated by Chemours beginning
July l, 2014 constitutes a breach of the Supply Agreement.65 ATI, on the other
hand, contends the language of the Supply Agreement~as supplemented and
interpreted by course of performance, trade usage, and Chemours’ extra-
contractual representations_unambiguously reflects the parties’ intent that
62 Supply Agreement §§ 2.1, 2.3, Schedule 2.l.
63 Id., Art. l.
64 Pl. Mot. for J. at 14 ("If OxyChem charged Chemours $300/ton for chlorine, than Chemours
would charge ATI $300/ton for chlorine within the. . .pricing formula."); Pl. Reply Br. at 3.
65 Pl. Compl. 1[1] 41-44; Pl. Reply Br. at l, 14-15.
15
Chemours would obtain chlorine from off-site suppliers.“ ATI thus maintains it
was justified in not paying the full price and counterclaims that Chemours, by
sourcing chlorine from the On-Site Facility and structuring the contract with
OxyChem, breached the pricing terms of the Supply Agreement.“
At the outset, it is clear to the Court that the Supply Agreement does not
expressly prohibit Chemours from obtaining chlorine from an on-site supplier. lt
is also clear, however, that the contract’s pricing provisions are replete with terms
-°"" Def.-Opp’n to Pl._Mot. for Ji at 20.
67 Def. Countercl. 11 50. In particular, ATI maintains Chemours breached Sections 2.l, 2.3 and
Schedule 2.l of the Supply Agreement by:
Ia'.
(a) sourcing chlorine from an on-site supplier, contrary to the parties’ intent and
agreement for Chemours (i) to obtain chlorine from off-site suppliers and (ii) to incur
freight costs to have the chlorine transported from Chemours’ off-site suppliers to
Chemours’ Titanium Tetrachloride Production Facility; and/or
(b) calculating the Chlorine Component Adjustments effective January l, 20l3, and
continuing to the present, based upon the costs incurred to fund OxyChem’s guaranteed
l5% rate of return on investment (i.e. Plant Margin) and the construction, start-up, and/or
operation of an On-Site Facility at the Titanium Tetrachloride Production Facility,
including without limitation the costs resulting from the closure of the barge dock, rather
than negotiating an arm’s length market price available to Chemours for chlorine
delivered to the Titanium Tetrachloride Production Facility by Chemours’ off-site
suppliers over the preceding six (6) month period; and/or
(c) imposing a Chlorine Component surcharge for the costs incurred to fund OxyChem’s
guaranteed l5% rate of return on investment (i.e. Plant Margin) and the construction,
start-up, and operation of an On-Site Facility at the Titanium Tetrachloride Production
Facility, which is not authorized by the Supply Agreement; and/or
(d) in the altemative, to the extent that the Supply Agreement authorized Chemours to
source chlorine from an on-site supplier, which ATI denies, negotiating an On-Site
Supply Agreement with OxyChem that calculates the price of chlorine utilizing (i)
OxyChem’s blended costs to produce chlorine and caustic soda, and/or (ii) a single price
for chlorine and caustic soda, such that the Chlorine Price used to calculate the Chlorine
Component Adjustments does not provide a true delivered price for chlorine.
16
tending to indicate that the Supply Agreement was drafted with the expectation
that the Chlorine Component of the contract price would be calculated according
to the price Chemours paid to off-site suppliers for chlorine delivered to the New
Johnsonville Facility plus "average freight costs."“ If that were not the case,
anyone equipped with even the most basic understanding of commercial
transactions would struggle to understand why, then, such sophisticated parties felt
the need to include in the definition of Chlorine Price language such as "price of
chlorine delivered to [Chemours’] Facility," "F.O.B. [Chemours’] facilities," or
"plus average freight costs to [Chemours’] Facility."69
Despite the Court’s impression that the possibility of on-site chlorine
production is not specifically addressed in the terms of the Supply Agreement, it
refuses to find that the contract required Chemours to obtain chlorine exclusively
from off-site suppliers. The Court agrees with Chemours that the term "delivered"
cannot be read to mandate delivery via rail or barge as opposed to by pipeline and
that the allowance for freight costs served "[a]s an entitlement benefitting
Chemours when it did incur such expenses," rather than "a limitation on its future
supply arrangements.’”° Absent any language connoting restriction, the Court is
58 S_upply_Agr_eeni-ent,
69 See id.
7°Pl. Reply Br. at 9; Pl. Mot. for J. at 22 (claiming that the latter would be a "maj or material
change to the Contract").
17
unwilling to accept as reasonable ATI’s interpretation that the definition of
Chlorine Price imposed a contractual obligation on the nation’s largest purchaser
of chlorine to obtain its chlorine from off-site suppliers alone.
The fact that the TiCl4 delivered to ATI under the Supply Agreement
ultimately came to be created using chlorine supplied on-site does not excuse
ATI’s obligation to pay for the TiCl4 it received. That obligation, however, cannot
extend to amounts charged in violation of the implied covenant of good faith and
fair dealing, the open-price provisions of the UCC, or through fraudulent conduct.
As discussed further below, a material issue remains, given the allegations set
forth in ATI’s counterclaim as to whether Chemours’ conduct leading up to the
Supply Agreement’s execution and in structuring the On-Site Agreement resulted
in commercially unreasonable prices, breached its good faith obligations, and/or
amounted to fraudulent inducement.
If the Court were to accept Chemours’ position, it would have to rule that
the Supply Agreement gave Chemours unfettered discretion to purchase chlorine
at any price and to pass that cost onto ATI. While the Court finds that the contract
requires payment for TiCl4 purchased, it is unwilling at this juncture of the
litigation to find that ATI was required to simply accept any potentially
unreasonable price caused by Chemours’ contractual relationship with its
18
suppliers. If ATI’s assertions are correct, this was an incredible deal for Chemours
and OxyChem. They could build a plant and pass on not only the cost of the
chlorine, but the cost of building the plant, to a third party. If true, it is hard to
imagine a more fitting example of the scenarios to which the concept of good faith
and fair dealing generally applies in order to prevent a contract from producing
unconscionable outcomes. From a purely contractual standpoint, ATI owes
Chemours for the TiCl4 it received pursuant to the Supply Agreement. The only
issue, then, is what constitutes a reasonable price for the product purchased. l
make this comment to inject some reasonableness into this litigation. The Court is
denying Chemours’ Motion at this juncture, but reasonable business people
making reasonable business decisions should resolve this issue.
B. Breach of 6 Del. C. § 2-305(2)
ln Count ll of its Counterclaim, ATI asserts that, beginning January l, 2013,
Chemours failed to fix the Chlorine Prices used to calculate the Chlorine
Component Adjustment in good faith, as required by 6 Del. C. § 2-305(2).7‘
Chemours responds that ATI’s claim must fail because § 2-305 does not apply to
the Supply Agreement.
`:-;
-7‘ ef. Countercl. 1 6l.
19
Section 2-305 of the UCC governs "open price terms" in contracts for the
sale of goods and is applicable "when the price term is left open on the making of
an agreement which is nevertheless intended by the parties to be a binding
agreement."n Pursuant to § 2-305(2), "[a] price to be fixed by the seller. . .means a
price for him or her to fix in good faith."73 The UCC commentary explains that this
provision intends to "reject[] the uncommercial idea that an agreement that the
seller may fix the price means that he [or she] may fix any price he [or she] may
wish. . ."74 "Good faith" is defined under § 2-305 to "include[] observance of
reasonable commercial standards of fair dealing in the trade if the party is a
merchant."75 Additionally, "in the normal case a ‘posted price’ or a future seller's
or buyer's ‘ given price,’ ‘price in effect,’ ‘market price,’ or the like satisfies the
good faith requirement."’° "An open price tenn that is not set in good faith gives
rise to a cause of action for breach of the underlying contractual open-price
77 6 Del. C. § 2-305, cmt. l.
73 Id. § 2-305(2).
7" Id. § 2-305, cmt. 3 ("Subsection (2). . .rej ects the uncommercial idea that an agreement that the
seller may fix the price means that he may fix any price he may wish by the express qualification
that the price so fixed must be fixed in good faith."). See also Stephenson Oil Co. v. Citgo
Petroleum Corp., 2010 WL 2998604, at *4 (N.D. Okla. July 28, 2010) ("The duty to set open
price terms in good faith ‘acts to preserve and control opportunistic behavior by requiring that the
price be reasonable and set pursuant to reasonable commercial standards of fair dealing in the
trade."’ (quoting Allapattah Servs., Inc. v. Exxon Corp., 61 F. Supp. 2d 1308, 1319
(S.D.Fla.l999))).
75 § 2-305, cmt. 3 (intemal citation omitted) (citing § 2-103 with respect to merchants).
76 Id.
20
from the New Johnsonville site." The parties spent more than a year validating the
technical feasibility of the arrangement and negotiating a long-term supply
agreement.$ While Chemours generated TiCl4 as an intermediate product through
its manufacture of TiOz pigment,° the processes it utilized were initially
insufficient to produce TiCL, at the high quality level ATI required.7 Once it
completed capital improvements to the New Johnsonville Facility enabling it to
satisfy ATI’s quality requirements, Chemours agreed to supply the TiCl4 to ATI. 8
At the core of this dispute are the Supply Agreement’s price terrns. Under
the Supply Agreement, ATI agreed to purchase minimum quantities of TiCl4 or
risk incurring substantial penalties.9 The parties agreed to price the TiCL, on a per-
pound basis and by calculating the sum of three "components"_the Non-Chlorine
Materials Component, Chlorine Component, and Fixed Component_each of
which would be adjusted periodically with reference to initial base prices.l° Of
most relevance to this litigation, the "Chlorine Component" represented "the
" Pl. Compl. 1] 6; Def. Answ. 1| 6. ATI intended at that time that the TiCl4 would be used in
connection with a new plant ATI planned to construct in Tooele County, Utah. See id.
5 Pl. Compl. 1111 8-10; Def. Answ. 1111 8-10.
6 Pl. Compl. 1[ 7 (noting that this requires "separating the Ti from titanium dioxide ores by
reducing the ores with coke under a flow of chlorine at very high temperatures"); Def. Answ. 11 7¢-
7 Pl. Compl. 11 8; Def. Answ. 1 8.
8 Id.
9 Supply Agreement §§ 3.2, 3.3.
l° Ia'., Schedule 2.l.
provision rather than an independent cause of action."" Nevertheless, where an
agreement reflects a price to be "set according to a particular standard, [§] 2-305
has no role to play."78
According to Chemours, the Supply Agreement reflects a "detailed,"
"highly negotiated," and "express standard" by which the price of TiCl4 was
determined, rendering 6 Del. C. § 2-305(2) inapplicable.” To accept this
argument, however, would be to ignore the fact that the Chlorine Component of
theTiCL, price was subject to semi-annual adjustment as calculated according to
whatever price Chemours agreed to pay the chlorine supplier(s) of its choice.g° The
g\_=i _1_»
77 See Stephenson Oil C0, 2010 WL 2998604, at *4 (stating that Allapattah explains "that good
faith is an interpretive tool to determine the parties' expectations under the contract and does not
create an independent duty divorced from the specific clauses of the contract").
78 See Kellam Energy, Inc. v. Duncan, 668 F. Supp. 861, 877 (D. Del. l987) (excluding parol
evidence).
79 Pl. Mot. for J. at 30-31. Chemours cites Dairyland Power Co-op v. Amax, Inc. in support of its
position. 700 F. Supp. 979 (W.D. Wis.l986). The Dairyland court acknowledged that, normally
"a contract that sets prices according to a detailed price adjustment mechanism tied to specific
cost factors does not implicate the open price provisions of UCC § 2-305." See id. at 990
(acknowledging also that "certain events during the term of a price adjustment contract may
operate to unsettle the contract price"). That case involved a contract which indisputably set a
"definite price" for coal, but subjected the set price to revision "under two separate schemes,"
including a renegotiation provision. See ia'. at 99l. The Court was "not persuaded by plaintiffs
argument that its renegotiation request rendered the price of coal open within the meaning of
UCC § 2-305" because the contract specifically "provide[d] for the possibility that the parties
may fail to reach an agreement" as to the negotiated price and addressed the precise "potential
outcome" that the seller could "continue supplying coal under the terms of the contract without
any revision in price." See id. Unlike the contract in that case, however, the Supply Agreement
does not provide "specific cost factors" or an altemative pricing scheme that expressly controls in
the event Chemours’s transitioned to an on-site chlorine supplier.
80 Def. Opp’n to Pl. Mot. for J. at 34-35.
21
Supply Agreement clearly required ATI to pay a price which was, in large part,
subject to variation within Chemours’s control.gl As such, Chemours was
obligated under § 2-305 "to act in good faith with respect to fixing the price of
chlorine."gz
Having found § 2-305 applicable, the Court turns to ATI’s allegations.
According to ATI, for the first six years of the contract, Chemours obtained
Chlorine Prices "that averaged at least 30 percent below [the] prevailing market
rates,"83 but these prices increased significantly once construction commenced on
the On-Site Facility.g" ATI attributes this increase to Chemours’ failure, beginning
in January 2013, to exercise its price fixing power in good faith by unreasonably
(l) closing its barge dock to construct the On-Site Facility and passing
significantly higher rail freight charges onto ATI;SS (2) selecting an on-site
supplier of chlorine contrary to its representation during negotiations;% (3)
_ _ _ _ .
“‘ See ZA Anderson U.C.C. § 2-305:52 (3d. ed.) (noting the open price provisions apply "when
the buyer pays in terms of a price which is to vary within the seller's control" and consequent to
that duty, "if a price increase is authorized in terms of a percentage of the seller's increased costs,
the seller must act in good faith with respect to costs and cost accounting methods" meaning "the
seller cannot ‘load’ new cost items on the contract, as for example, by purchasing new machinery
which will outlive the life of the particular contract while charging the entire purchase price to
the particular contract's costs").
82 See id.
"’ Def. Countercl.\l 21.
84 Id. 1]‘[| 26-33.
”Id. 11 59(a).
“°Ia'. 11 59(b).
22
negotiating and entering the On-Site Agreement with OxyChem;M and/or (4)
"denying ATI any financial benefits from the. . .On-Site Facility by terminating the
Supply Agreement effective December 3 l, 20 l 5."88
According to ATI, the On-Site Agreement was structured so that ATI would
effectively fund not only the On-Site Facility’s construction and operation, but
also OxyChem’s guaranteed 15 percent rate of retum. 89 Further, ATI alleges that
it was not charged the "true delivered price of chlorine" because OxyChem was
able to pass its blended costs of chlorine and caustic soda onto ATI.9° The
arrangement allegedly resulted in significantly higher Chlorine Component
charges to ATI under the Supply Agreement than would have occurred had
87 Id. 1[ 59(o)-(j), (l). Specifically, ATI claims Chemours breached the open price provisions by
"choosing not to negotiate an arm’s length market price available to Chemours for chlorine with
OxyChem" and entering the On-Site Agreement, which:
(c) require[d] ATI to pay OxyChem’s construction, start-up, and operating costs;
and/or (d). .. require[d] ATI to pay OxyChem’s guaranteed l5% rate of retum. . .(i.e. Plant
Margin); and/or (e) ... required ATI to pay OxyChem’s blended costs to produce chlorine
and caustic soda. . .; and/or (f) ...calculates the price of chlorine utilizing a single price
for chlorine and caustic soda, such that the Chlorine Price. . .does not provide a true
delivered price for chlorine; and/or (g) ...incorp0rates the Irnpr0per Caustic Soda
Subsidy, which Chemours knew would persist for the remaining term of the ATI Supply
Agreement, such that the Chlorine Price. . .does not provide a true delivered price for
chlorine; and/or (h) ... failed to effectively mitigate disparities between the prices for
chlorine charged by OxyChem and market prices for chlorine and caustic soda; and/ or
(i). . .allows OxyChem to charge commercially unreasonable prices for chlorine; and/or (j)
.. produced Chlorine Prices. . .substantially and materially greater
than. . .prices. . .Chemours. . .obtained for its other facilities. . ..
88 Id. 1]1[ 59(m), 60.
39 Ia’. 11 59(c)-(h).
"’° Id.
23
Chemours engaged in "arm’s length market transactions."m The amount
Chemours agreed to pay OxyChem is also alleged to be "substantially and
materially greater" than the chlorine prices paid by Chemours for "its other
facilities."” Ultimately, ATI contends Chemours’ conduct resulted in
commercially unreasonable and uncompetitive Chlorine Prices and denied ATI the
193
benefit of the Supply Agreemen
°' Id. 11 59(k).
92 Ia'. 11 59(]`).
93 Def. Opp’n to Pl. Mot. for J. at 36-38. ATI claims Chemours "received benefits from the On-
Site Facility that were not shared in any respect with ATI, including,
but not limited to the following:"
(a) While Chemours anticipated that, starting in the fifth year of operation of the On-Site
Facility, costs for chlorine would be less expensive than chlorine obtained from off-site
suppliers, Chemours knew that chlorine obtained from an On-Site Facility would be
significantly more expensive than chlorine from offsite suppliers during the first four years
of the On-Site Facility, which encompassed the entire remaining term of the Supply
Agreement. Accordingly, only Chemours stood to benefit from obtaining future favorable
pricing from the On-Site Facility at ATI’s expense.
(b) Chemours received multi-million dollar price concessions from chlorine suppliers to
supply chlorine to Chemours’ other facilities as a result of entering into the On-Site
Supply Agreement with OxyChem. None of these price concessions benefitted ATI and
were at ATI’s expense, as the Chlorine Price was based solely on the price of chlorine
obtained from the On-Site Facility,
(c) The On-Site Facility enabled Chemours to pursue a program to sell salt brine to
OxyChem and close its salt plant, thereby providing Chemours with expected savings of
millions of dollars in annual operating expenses, deferring and/or avoiding millions of
dollars in maintenance expenses, and avoiding $20 million in capital investment. ATI
received no benefit from Chemours selling salt brine to OxyChem and potentially closing
its salt plant.
(d) Chemours received caustic soda prices under the On-Site Supply Agreement that were
below prevailing market prices for caustic soda. ATI did not receive any benefit from the
below market caustic soda prices obtained by Chemours. To the contrary, ATI has borne
the cost of the improper Caustic Soda Subsidy through increased Chlorine Prices used to
calculate the Chlorine Component Adjustments.
Def Countercl. 11 60.
24
Accepting the allegations of ATI’s Counterclaim as true and drawing all
reasonable inferences in its favor, the Court concludes ATI has stated a claim for
breach of contract pursuant to 6 Del. C. § 2-305(2). At this stage, it would be
premature for the Court to render a decision as to the commercial reasonableness
of and/or good faith/ bad faith conduct underlying Chemours’ pricing of ATI’s
TiCl4_94
C. Breach of the Implied Covenant
In Delaware, the implied covenant of good faith and fair dealing inheres in
every contract and mandates that parties thereto "refrain from arbitrary or
unreasonable conduct" that would prevent "the other party. . .from receiving the
fruits of the[ir] bargain." 95 The implied covenant applies only when "a contract is
silent as to the issue in dispute,"% and, therefore, is generally "triggered when the
defendant's conduct does not violate the express terms of the agreement but
nevertheless deprives the plaintiff of the fruits of the bargain."w In effect, the
°" See Desert Equities, Inc., 624 A.2d at 1206-09 (emphasizing that fairly pleaded allegations of
bad faith and/or unreasonableness essentially raise "question[s] of fact which generally cannot be
resolved on the pleadings").
95 See Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 442 (Del. 2005) (intemal quotation
omitted).
96 See In re Conex Hla'gs., LLC, 518 B.R. 792, 803 (Bankr. D. Del. 2014) (quotingAQSR India
Private, Ltd. v. Bureau Veritas Hldgs., Inc., 2009 WL l7079lO, at *ll (Del. Ch. June l6, 2009)).
See also Kuroda v. SPJS Hldgs., L.L.C., 971 A.2d 872, 888 (Del. Ch. 2009) (recognizing that the
implied covenant cannot be utilized to supersede a contract’s express terms).
97 See Amirsaleh v. Bd. ofTrade ofCity ofNew York, Inc., 2009 WL 3756700, at *4 (Del. Ch.
Nov. 9, 2009) (citing Chamison v. HealthTrust, Inc.-Hosp. C0., 735 A.2d 9l2, 920
25
implied covenant is best characterized "as a judicial tool used to imply terms in a‘
contract that protect the reasonable expectations of the parties [there]to."% Our
Courts have emphasized that the implied covenant of good faith and fair dealing
assumes a particularly important role in cases involving "contracts that defer a
decision at the time of contracting and empower one party to make that decision
later."99 When a contract confers discretionary rights upon a party, the implied
covenant demands that the discretion be exercised reasonably and in good faith.l°°
An analysis of "what is ‘arbitrary’ or ‘unreasonable’ . . .depends on the parties'
original contractual obligations and reasonable expectations at the time of
contracting."‘°l Fairly pleaded allegations of bad faith and/or unreasonableness
essentially raise "question[s] of fact which generally cannot be resolved on the
>1102
pleadings.
ATI relies on essentially the same conduct alleged in its counterclaim for
breach of § 2-305 to support its implied covenant claim, with added focus on
(Del.Ch.l999), ajj"d, 748 A.2d 407 (Del.2000)); Airborne Health, Inc. v. Squid Soap, LP, 984
A.2d l26, 146 (Del. Ch. 2009) (noting that the implied covenant "operates only in that narrow
band of cases where the contract as a whole speaks sufficiently to suggest an obligation and point
to a result, but does not speak directly enough to provide an explicit answer").
98 See Amirsaleh, 2009 WL 3756700, at *4 (Del. Ch. Nov. 9, 2009) (quoting E.I. DuPont de
Nemours & Co. v. Pressmcm, 679 A.2d 436, 443 (Del.l996)).
99 See z`d. at *5 (citation omitted).
‘°° See Airborne Health, Inc., 984 A.2d at l46-47 (citation omitted).
‘°‘ See In re Encore Energy P'rs LP Unitholder Litig., 2012 WL 3792997, at *l2 (Del. Ch. Aug.
3 l, 20l2) (intemal quotation marks omitted) (citations omitted).
‘°2 See Desert Equitz`es, Inc., 624 A.2d at 1206-09.
26
Chemours’ exercise of discretion under the Supply Agreement. In other words,
ATI’s claims that, to the extent the contract does not bar Chemours’ use of on-site
chlorine, Chemours exercised its discretion to select its chlorine suppliers,
negotiate chlorine price and shipment terms, and structure the On-Site Agreement
unreasonably.l“ ATI argues Chemours entered and structured the On-Site
Agreement solely for its own benefit and failed to consider preserving ATI’s
benefit of the bargain under the Supply Agreement.‘°"
Chemours responds that ATI’s counterclaim is defeated by the Supply
Agreement’s express terms and ATI’s allegations with respect to its negotiation
and drafting history.1°5 Chemours emphasizes that the implied covenant involves
"inferring contractual terms to handle developments or contractual gaps that the
asserting party pleads neither party anticipated."l°é Because ATI alleges that on-
site chlorine was a hotly contested issue that the parties actually negotiated,
Chemours argues ATI cannot rely on the implied covenant to secure additional
terms that "were rejected during negotiations or easily could have been included at
the time of contracting."“" According to Chemours, ATI is properly limited to the
103 Def. Countercl.\l 52.
‘°" 1¢1.1111 53-54.
105 Pl. Mot. for J. at 26.
‘°° Ia'. (quoting Nemec v. Shrader, 991 A.Zd ll20, 1125 (Del. 2010)),,5
‘°7 Ia'. at 27.
27
express price protections for which it did successfully negotiate, such as the
Supply Agreement’s Economic Force Maj eure provision and Chemours’ guarantee
that it would not charge ATI a price for TiCl4 higher than that charged to other
Chemours’ customers.l°g
The Court declines to accept Chemours’ position. Under the Supply
Agreement, Chemours was able to choose where it sourced its chlorine from and
to freely negotiate the terms of its contracts with its chosen suppliers. In exercising
that discretion, Chemours was required to act reasonably and in good faith. Based
on ATI’s allegations and the contents of the Supply Agreement, the concept of
ATI funding the construction and operation of Chemours’ On-Site Facility seems
entirely unanticipated and unexpected by the parties. In fact, ATI may
conceivably prove that Chemours represented that no on-site facility would be
constructed during the life of the Supply Agreement. Under such circumstances,
that Chlorine Price would come to include the costs of on-site production seems
not only unexpected and unanticipated, but a development Chemours affirmatively
removed from the bargaining table.
ATI alleges Chemours structured the On-Site Agreement solely for its own
financial benefit which resulted in commercially unreasonable and uncompetitive
‘°8 1a ar 28. see als<; su§iy__-Agr@@m@nr §§ 7.3, 11.2.
28
chlorine prices for ATI. This conduct, if established, deprived ATl of the benefit
of its bargain. Whether Chemours breached its good faith obligations in
exercising the discretion it was granted under the Supply Agreement thus remains
to be determined and prevents the Court from granting Chemours’ Motion.
D. Fraudulent Inducement
To establish fraudulent inducement, ATI is required to plead facts
supporting the inference that (l) Chemours made "a false representation, usually
one of fact;" (2) Chemours knew its "representation was false, or was made with
reckless indifference to the truth;" (3) Chemours intended to induce ATl "to act or
to refrain from acting;" (4) ATI’s action or inaction was "taken in justifiable
reliance upon the representation;" and (5) damage to ATl as a result of such
reliance.‘°°
Here, ATI’s Counterclaim alleges certain ATI representatives met with
Richard Olson, Gerald Colamarino, John Pritchard, and Norman Griffiths of
Chemours at Chemours’ Wilmington office on August l, 2006.“° A Chemours
representative, who ATI was later able to pinpoint as Olson, allegedly represented
to ATI at the meeting that the On-Site Facility would not be constructed during the
;_l:We:-Gajjin v. Telea'yne, Inc.: 611 A.2d 467, 472 (Del.l992).
"° Def. Countercl.W 12, 64; Def. Opp’n to Pl. Mot. for J. at 42.
29
term of the Supply Agreement.m According to ATI, Chemours knew Olson’s
representation was false, or at the very least that it was made with reckless
indifference to the truth, at the time it was made to ATI.“Z ATI’s Counterclaim
states that Chemours has since admitted in this litigation that, at the time of the
August l, 2006 meeting and the Supply Agreement’s execution, Chemours
planned to have the On-Site Facility constructed "some time during the period of
September l, 2006 and December 3l, 2015."1 13 ATI maintains it justifiably relied
on Olson’s representation and was "fraudulently induced. . .to drop its demand for
a l0 percent cap on price increases and enter into the Supply Agreement."“" Had
ATI been aware that Chemours’ statement was false, it would have demanded the
Supply Agreement "include a specific alternative pricing formula for chlorine
produced by an On-Site Facility" that would preclude Chemours from passing on
its construction, start-up, and operating costs.‘" ATI also claims it would have
sought assurance from Chemours that the "On-Site Facility would not increase the
highly-favorable chlorine prices. . .Chemours...obtain[ed] from off-site suppliers as
the United States’ largest purchaser of chlorine."l 16 Characterizing Chemours’
Y“ 1¢1. _
m Def. Counterclj] 65.
'“1¢1. 11 14.
114 1a 11 67.
~Sld. 11 6a
116 Id.
30
portion of the overall price of [TiCl4] that is subject to the Chlorine Component
Adjustment and that the parties. . .have agreed will be [28%] of the initial price of
[TiCl4]."“ The "Chlorine Component Adjustment" was applied semiannually
based on the percentage by which the "Chlorine Price" on the date of the
adjustment was greater or less than the price of chlorine at the start of contract.”
The Supply Agreement defines "Chlorine Price" as:
[T]he weighted average price of chlorine delivered to [Chemours’ New
Johnsonville facility] and actually charged to [Chemours] by its suppliers
over the previous six (6) months F.O.B. [Chemours’] facilities (as
distinguished from contract prices for chlorine) plus average freight costs to
the [New Johnsonville facility].”
As negotiations progressed, Chemours informed ATI that it was considering
constructing a chlorine production facility on the New Johnsonville site in order to
"mitigate risks" associated with the shipment of chlorine from off-site suppliers.“
On July 26, 2006, a representative of Chemours allegedly emailed ATI advising
that the definition of "Chlorine Price" include a clause requiring the parties to
negotiate a new formula in the event Chemours pursued on-site chlorine
production.'$ In response, ATI was allegedly adamant that any alternative pricing
" Ia'., Art. l.
12 Id., Art. l,§ 2.3, Schedule 2.l
13 Id., Art. l (specifying adjustment timelines in terms of "July 1 to December 31 for the January
l adjustment and January 1 to June 30 for the July l adjustment").
14 Pl. Compl. 11 ll; Def. Answ. 1| ll.
15 Def. Countercl. 11 7.
conduct as "malicious, wanton, and undertaken with reckless indifference to ATl’s
rights," ATI seeks punitive damages in connection with its fraud claim.'"
Chemours asserts that ATl’s fraud claim must fail because it (l) does not
satisfy the particularity requirements of Superior Court Civil Rule 9(b) and (2) is
barred by the Supply Agreement’s integration clause.“g Chemours’ particularity
argument relates to ATl’s failure to specify in its Second Amended Counterclaim
which of the three Chemours’ representatives it met with on August l, 2006 made
the allegedly fraudulent statement, as required by Rule 9. Given that Chemours
was able to file its answer to ATl’s Counterclaim and that ATI has since identified
Olson as the speaker, the Court finds Chemours’ has adequate notice of ATl’s
fraud claim.
Chemours also contends ATl’s fraud claim must fail because the Supply
Agreement’s integration provision precludes justifiable reliance. Section 13.5 of
the Supply Agreement is entitled "Entire Agreement" and provides that the
contract "constitutes the entire agreement between the parties with respect to the
matters specified in this Agreement and supersedes all of their prior and
contemporaneous agreements, understandings, negotiations, inducements,
:» .
Ti;w 69-7?.: _
118 Pl. Mot. for J. 17-18,-$
31
representations, or conditions, whether oral or written, whether express or implied,
with respect to the matters specified herein."‘” ATl responds that Chemours’s
argument ignores the distinction Delaware law draws between anti-reliance and
integration provisions, maintaining the latter is insufficient to preclude justifiable
reliance.lz°
Generally, "when sophisticated parties include a broad but unambiguous
anti-reliance clause in their agreement," Delaware courts will "indulge the
assumption that they said what they meant and meant what they said."m Whether
certain proyisions of a contract will operate to foreclose a party’s reliance on
extra-contractual representations often depends on the precise language utilized in
the agreement Delaware law does not require contracting parties incorporate
specific language or "magic words" to disclaim reliance.m Rather, courts will
inquire whether the contract, when read cohesively, can be said to contain an
unambiguous and explicit statement by the aggrieved party that it did not rely on
119 Supply Agreement § 13.5.
120 Def. Opp’n to Pl. Mot. for J. at 43.
m See MBIA Ins. Corp. v. Royal Indem. Co;, 426 F.3d 204, 218 (3d Cir. 2005).
m See FdG Logistics LLC v. A&R Logistz`cs Hldgs., Inc., l3l A.3d 842, 860 (Del. Ch.
20l6)(citing Prairie Capital III, L.P. v. Double E Hldgs. Corp. 2015 WL 746l807 (Del. Ch.
Nov. 24, 2015)).
32
representations made outside of the contract’s four corners in deciding to enter the
agreement.m
As ATI correctly points out, the presence of a standard integration clause
will not alone suffice to preclude justifiable reliance.m Chemours argues the
Delaware Court of Chancery’s decision in Blackhorse Capz'tal stands for just the
opposite proposition. The Court disagrees. Section 13.5 states in general terms
that the Supply Agreement constitutes the entire agreement between the parties.‘”
lt does not unambiguously disclaim reliance on extra-contractual statements.
Further, the clause plainly extends only to "the matters specified" within the
Supply Agreement. This is not a case where the alleged extra-contractual
m See ia'. ("The language to disclaim such reliance may vary, as the Court noted in Prairie
Capz'tal, but the disclaimer must come from the point of view of the aggrieved party (or all
parties to the contract) to ensure the preclusion of fraud claims for extra-contractual statements
under Abrjy and its progeny"). See also In re Med. Wz`nd Down Hldgs. III, Inc., 332 B.R. 98, 105-
06 (Bankr. D. Del. 2005) (recognizing that a contract "need not necessarily contain the words
‘rely’ or ‘reliance;’ but such provisions must ‘clearly’ and ‘explicitly’ promise not to rely");
Kronenberg v. Katz, 872 A.2d 568, 591 (Del.Ch. 2004) (refusing to give integration clause effect
of anti-reliance where language failed to "forthrightly affirm" that the parties were not relying on
any representation or statement not contained in the agreement), affd without op., 867 A.2d 902(Del.2005); Abry P'rs V, L.P. v. F & WAcq. LLC, 891 A.2d 1032, 1058-59 (Del. Ch. 2006).
m See Kronenberg, 872 A.2d at 593. See also MicroStz/ategy Inc. v. Acacia Research Corp.,
2010 WL 5550455, at *13 (Del. Ch. Dec. 30, 2010) (holding that an integration clause must
"contain an explicit anti-reliance representation" to preclude "fraudulent inducement based on
extra-contractual statements made before the effectuation of the contract"); Abry P ’rs V, L.P, 891
A.2d at 1058-59.
125 See Fa'G Logistics LLC, 131 A.3d at 860 ("[T]he integration clause contained in Section 10.7
merely states in general terms that the Merger Agreement constitutes the entire agreement
between the parties, and does not contain an unambiguous statement by Buyer disclaiming
reliance on extra-contractual statements."); Anvil Hla'g. Corp. v. Iron Acq. C0., 2013 WL
2249655, at *8 (Del. Ch. May 17, 2013).
33
representation directly conflicts with the subsequently executed agreement.l%
While the Court refused to find the Supply Agreement required Chemours to
source off-site chlorine, it is clear in that Chlorine Price was defined in
contemplation of an arrangement involving delivery of chlorine to Chemours from
off-site suppliers for which freight charges would be incurred. Also absent from
this case is a detailed "exclusive representations and warranties" provision.
Ultimately, the Court cannot find at this stage in the litigation that the Supply
Agreement’s integration clause sufficiently precludes ATI’s fraud claim.
While the Court will not dismiss the fraud claim at this juncture of the
litigation, it does express significant reservations regarding the merit of this claim.
The alleged statements that form the basis of the claim occurred during the
negotiations in 2006 which ultimately led to the execution of the contract. To
prove this claim, ATI will need to establish that the statements were false when
made in 2006 or made with reckless indifference to its truth. The fact that
Chemours subsequently made a different business decision years later does not
establish an inference that the statement was false when made. Further, an
30, 20l4) (refusing to fine justifiable reliance where contract included integration clause,
emphasizing "how directly and completely the terms of the alleged Serenity Agreement
conflict[ed] with the plain language of the Acquisition Agreements. . ."). See also TrueBlue, Inc.
v. Leeds Equz`ty P’rs IV, LP, 2015 WL 5968726, at *9 (Del. Super. Sept. 25, 2015).
34
126 see mack H@,»§e caBz-, L'P v. Xs»ez@s Hldgs., rnc., 2014 WL 5025926, ar *26 (Del. ch. sept
admission that an on-site facility would be built during the contract term does not
necessarily make the " construction" representation false. While the Court
appreciates and understands that litigation strategy and dynamics caused counsel
to include this assertion, establishing in essence that representatives of Chemours
lied to ATl with the intent to mislead it into executing the Supply Agreement
presents significant hurdles. Counsel needs to stop posturing the litigation and be
realistic as to what can be established. This is not a difficult litigation to settle if
the parties would simply step back and calculate what is fair and reasonable.
IV. CONCLUSION
For the reasons set forth above, Chemours’ Motion for Judgment on the
Pleadings is denied.
IT IS SO ORDERED.
udge William C. Carpelite?'/J"f.
35
scheme (l) appear in the Supply Agreement; (2) exclude construction, start-up,
and operation costs associated with the on-site facility; and (3) maintain the
favorable chlorine prices Chemours obtained from off-site suppliers given its
"substantial buying power as the United States’ largest purchaser of chlorine."“
ATI also proposed "Chlorine Price" be defined as "the lower of (i) Chemours’ cost
to produce chlorine at the On-Site Facility or (ii) the prevailing market price for
chlorine available to Chemours."" According to ATI, unless "the issue of
chlorine pricing for an On-Site Facility was expressly set forth in the Supply
Agreement, or eliminated, ATI advised Chemours that [it] would not enter" the
contract.lg At the same time the parties were attempting to resolve issues relating
to the definition of Chlorine Price, ATI was also allegedly insisting that the
Supply Agreement incorporate a cap on periodic price adjustments.”
Representatives of ATI and Chemours met in Wilmington, Delaware on
August l, 2006 in an effort to address the issues that had arisen concerning the
price terms of the Supply Agreement.z° During the meeting, Richard Olson of
Chemours allegedly represented to ATI that the on-site facility would not be
16 Id. 11 8. See also Pl. Compl. 11 24; Pl. Reply Br. at 5-6_$
" Def. Countercl. 1[ 9.
'8 Id. 11 10.
1° ld. 11 11.
2° 1¢1. 11 12.
constructed during the term of the Supply Agreement and withdrew its demand for
an alternative pricing provision.2l In exchange for this representation, ATI
allegedly withdrew its demand for a cap on the periodic price adjustments.22 The
relevant pricing provisions thus remained unchanged following the meeting and
the Supply Agreement was subsequently executed on August 28, 2006.23
For approximately the first six years of the Supply Agreement, Chemours
received shipments of chlorine from off-site suppliers, primarily by barge.24 This
arrangement purportedly resulted in favorable chlorine prices for Chemours,
which were passed onto ATI by virtue of the Supply Agreement’s Chlorine
Component Adjustment.25 However, in 201 l, Chemours entered into a series of
agreements with Occidental Chemical Corporation ("OxyChem") permitting
OxyChem to build a chlor-alkali facility on the New Johnsonville site at
estimated construction cost of $250-290 million (the "On-site Facility").26 Once
complete, the OxyChem plant was intended to supply 100 percent of Chemours’
21 Id. 1[ 13; Def. Opp’n to Pl. Mot. for J. at 42 ("[A]s the result of discovery and further
investigation, ATI has been able to identify Rick Olson as the person who made
the. . .statement.").
22 Def. Countercl. 11 l5 ("ATI was willing to rely on Chemours’ purchasing power as the nation’s
largest buyer of chlorine to control price fluctuations.").
23 Pl. Compl. 111 6, l2; Def. Answ. 1[1[ 6, 12. See also Def. Countercl. 11 4.
24 Pl. Compl. 11 25; Def Countercl. 1[ 2l. See also Def. Opp’n to Pl. Mot. for J. at 12.
25 Def Countercl. 11 21.
26 Pl. Compl. 11 26 (noting that the agreement with OxyChem also allowed OxyChem to utilize
the New Johnsonville barge dock to "ship caustic soda produced there"); Def. Countercl. 1[ 22.
"” Pi._c_ompi_.qi 26.
chlorine requirements for the New Johnsonvi1le facility.” Chemours closed its
barge dock around November 2012 to facilitate construction of the On-Site
Facility and transitioned to the more costly alternative of receiving chlorine
shipments by rai1. 28
In contrast to the below-market prices Chemours obtained during the first
six years of the Supp1y Agreement, the Chlorine Price used to calculate the
Chlorine Component Adjustment for the period of January 1, 2013 to June 30,
2013 allegedly increased by at least 14 percent.” According to ATI, when asked,
Chemours attributed the increase to rail freight charges and assured ATI that the
prices would drop once the On-Site facility was comp1ete.3°
In September 2013, OxyChem became Chemours’ sole chlorine supp1ier,
although chlorine could not be produced exclusively on-site until completion of
the On-Site Facility.” During this time, significant increases in Chlorine Price
persisted.” The periods of Ju1y 1, 2013 to December 31, 2013 and January 1,
2014 to June 30, 2014 revealed Chlorine Prices 51 and 39 percent higher than the
a .
28 Def. Countercl. 11 25; Pl. Answ. to Def Countercl. 11 25.
29 Def. Countercl.11 27.
3° Id. 11 28.
31 Pl. Compl. 1111 26-27.
32 Def. Countercl. 1111 29-30.
average historical below-market prices Chemours obtained in preceding years.”
ATI again inquired about the price increase and Chemours continued to reassure
ATI that the change in price was only temporary and that "the On-Site Facility
would result in Chlorine Prices lower than those charged by off-site suppliers once
[it] fully came online."34
The On-Site Facility became fully operational on May l, 2014.35 Despite
Chemours’ repeated assurances, the July l, 2014 to December 31, 2014 period
allegedly revealed a Chlorine Price 118 percent higher than the prices Chemours
obtained from off-site suppliers during the first six years of the Supply
Agreement.% This time when ATI questioned the increase, Chemours responded
that the price of chlorine under its agreement with OxyChem switched from
market-based to "cost-plus pricing," meaning that the sales price for chlorine
supplied by the On-Site Facility "was calculated by adding OxyChem’s variable
and fixed costs for the month to a monthly margin. . .and then dividing the total by
the ...plant’s actual production for the month."” Indeed, the On-Site Agreement
;Id. _ _
34 ld. 11 31.
35 Pl. Compl. 1]1[ 26-27.
36 Def. Countercl. 1[ 32.
37 Pl. Compl. 11 28; Def. Answ. 1 28. See also Def. Countercl. 11 34; Pl. Answ. to Def. Countercl. 11
34 ("Per Section 4.2(b), DuPont and Chemours’ sales price for chlorine supplied by the On-Site
Facility is defined to equal the ‘(actual Plant Variable Costs + actual Plant Fixed Costs +
Monthly Plant Margin) + actual Plant Production."’).
expressly provided that "the. . .[Chemours] Sales Price is not based upon the
market dynamics for Chlorine and Caustic Soda. Consequently, at times
the. . . [Chemours] Sales Price . . . may be greater than the prevailing market price
for Chlorine and Caustic Soda."38 Under this pricing formula, the cost of caustic
soda and the costs of constructing, starting, and operating the On-Site Facility
were passed to ATI as part of the "Chlorine Price" used to calculate the Chlorine
Component Adjustment.” Further, the "Plant Margin" component of the On-Site
Agreement’s formula provided OxyChem "‘an internal rate of return equal to l5%
on OxyChem’s total investment in the Plant, which includes the investment
required to supply. . . [Chemours’] Chlorine and Caustic Soda Requirements.""‘°
This margin was intended as a contractual "‘incentive for OxyChem to invest in
the construction and operation of the Plant to produce Product during the Initial
rem "’4‘
On August 27, 2014, ATI formally notified Chemours that it was disputing
the July 2014 price adjustment."z According to ATI, the January-June 2015 period
38 Def. Countercl. 11 36; Pl. Answ. to Def. Countercl. 11 36 (quoting Section 4.l(a)(3)(e) of the On-
Site Agreement).
”Def. Countercl. 11 33; Pl. Answ. to Def. Countercl. 11 33.
‘*° Def. Countercl. 11 35; Pl. Answ. to Def. Countercl. 11 35 (quoting Section 4.l(a)(3) of the On-
Site Agreement).
41 See ia'.
42 Pl. Compl. 1111 30-31.
reflected a Chlorine Price at least 122 percent higher than the below-market prices
Chemours obtained from its off-site suppliers.‘” According to Chemours, ATI has
since refused to pay approximately $2.7 million of the amounts invoiced from July
2014 through January 20 1 5. 44
As a result, on March 12, 2015, Chemours commenced the instant litigation
seeking to recover the $2.7 million from ATI."S In its Complaint, Chemours claims
it is entitled to damages from ATI for breach of contract and breach of the implied
covenant of good faith and fair dealing/16 Chemours also requests a declaratory
judgment by the Court that:
(i) the Supply Agreement is a valid and enforceable contract that
remains in full force and effect; and (ii) ATI is required under the
Supply Agreement to pay the full purchase price for TiCl4 after July l,
2014, as calculated by Chemours, with the Chlorine Adjustment
Amount based on the price actually charged by OxyChem for chlorine
delivered to the TiCl4 production facility of Chemours at New
Johnsonville.‘"
In response, ATI filed the operative Second Amended Answer, Aff`irmative
Defenses, and Counterclaim on October 30, 2015, According to ATI, Chemours
"’ Def. Countercl. 11 43,;.
"" Pl. Compl. 11 32.
45 Ia'.
46 Id. 1111 40-50.
‘"Id. 11 39.
10