United States District Court, N.D. Indiana, Fort Wayne Division
OPINION AND ORDER
ROBER B. COSBEY, Magistrate Judge.
These Findings of Fact and Conclusions of Law follow a two-day bench trial held on September 8-9, 2013, on the amount of damages due Plaintiff BRC Rubber & Plastics, Inc. ("BRC"), as a result of Defendant Continental Carbon Company's ("Continental") breach and repudiation of a Supply Agreement between the parties. (Docket # 93-94.) Under the Agreement, Continental agreed to supply all of BRC's requirements for carbon black from January 1, 2010, to December 31, 2014.
Following the preparation of a transcript,  counsel submitted post-trial briefs and responses (Docket # 97, 102-03, 105-07), as well as proposed findings of fact and conclusions of law (Docket # 98, 101). After examining the entire record, considering the arguments of counsel, and determining the credibility of the witnesses, the Court makes the following Findings of Fact and Conclusions of Law in accordance with Federal Rule of Civil Procedure 52(a) based upon a preponderance of the evidence.
II. FINDINGS OF FACT
A. Relationship of the Parties
BRC is a manufacturer of rubber products for use in the automotive industry. (Tr. 149-50.) Continental is one of only five suppliers in the United States of furnace grade carbon black, a raw material filler used in rubber products. (Tr. 18-19, 150; Nunley Dep. 4.) Continental had supplied BRC's requirements of carbon black for at least twenty years prior to the parties entering into the Supply Agreement. (Tr. 182; Nunley Dep. 3.) The amount of carbon black in million pounds that BRC purchased from Continental from 2003 to 2009 was: 2.01 in 2003; 2.13 in 2004; 2.12 in 2005; 1.89 in 2006; 2.30 in 2007; 2.43 in 2008; and 2.02 in 2009. (Ex. 79; Tr. 93.) These purchases make BRC a "small carbon black user" in the market (Tr. 189), as Continental produces approximately 500 million pounds annually (Tr. 227, 251).
B. The Parties Enter Into the Supply Agreement as of January 1, 2010
In 2009, Continental's president asked his sales team to negotiate as many long-term contracts with its customers as possible in order to get long-term volume commitments. (Nunley Dep. 2.) Accordingly, Thomas Nunley, a salesperson for Continental who had handled BRC's account since 1997, negotiated the terms of the Supply Agreement with Mike Cornwell, BRC's Vice President of Materials. (Tr. 21-22; Nunley Dep. 1, 5-7, 11; Exs. 1-4.) Cornwell told Nunley at the time that BRC planned to grow "both organically and through acquisitions, " and thus, BRC's volumes would begin to "ramp up from the doldrums [it] had seen in 2008." (Tr. 83.)
BRC was negotiating a similar agreement with Sid Richardson Carbon Company at the time, whereby Sid Richardson would become BRC's exclusive supplier. (Tr. 22-24, Ex. 2.) Cornwell credibly testified that although Sid Richardson's base prices were lower than Continental's, BRC ultimately chose to enter into the Supply Agreement with Continental because it "was a better value overall." (Tr. 27.)
On January 1, 2010, BRC and Continental executed the Supply Agreement obligating Continental to supply, and BRC to purchase, all of BRC's requirements of three grades of carbon black (referred to in the industry as N339, N550, and N762) through December 31, 2014. (Exs. 1, 5; Docket # 46.) The Agreement estimated BRC's annual requirements at 1.8 million pounds and provided a pricing formula of firm, baseline prices per pound for each of the three grades of carbon black with monthly feedstock oil and natural gas adjustments. (Ex. 5; Docket # 46 at 14.) It also included a rebate/penalty program. (Ex. 5.)
The rebate/penalty program provided that as long as BRC purchased between 1.5 and 2.1 million pounds of carbon black a year, the price remained the same. (Ex. 5.) But if it purchased more than 2.1 million pounds a year, it would receive a $.005 rebate per pound, and if it purchased less than 1.5 million, it would pay an additional $.005 per pound penalty. (Ex. 5.) The rebate/penalty increased to $.01 if BRC purchased more than 2.2 million pounds in a year or less than 1.4 million pounds. (Ex. 5.) The rebate/penalty program further provided: "Should the normal annual volume for BRC shift significantly BRC and Continental agree to establish new upper and lower limits." (Ex. 5.)
C. After Continental Breaches and Repudiates the Supply Agreement, BRC Terminates It on June 2, 2011, and Files This Lawsuit
In 2010, during the first year of the Supply Agreement, Continental projected that it would supply BRC with 1.95 million pounds of carbon black, but it actually supplied 2.612 million pounds. (Tr. 92; Ex. 79.) In 2011, Continental designated 2.734 million pounds to BRC in its annual operating plan (Ex. 79); likewise, in May 2011, BRC estimated its 2011 requirements of carbon black at approximately 2.7 million pounds. (Tr. 94-95, 134; Exs. 9, 13.)
Continental failed to ship all of BRC's requested May and June 2011 orders, and in doing so, breached the terms of the Supply Agreement. (Docket # 80 at 18.) Continental then repudiated the terms of the Supply Agreement by failing to provide adequate assurance of performance to BRC (Docket # 80 at 22), and BRC terminated the Supply Agreement on June 2, 2011, and filed the instant lawsuit (Ex. 17; Docket # 1).
D. BRC Purchases Carbon Black From Cabot for the Remainder of 2011
Cornwell, whose job involved purchasing BRC's raw materials, credibly testified that based upon first-hand knowledge the carbon black market was "tight" when BRC terminated the Supply Agreement (Nunley Dep. 9-11; Tr. 229, 250), and thus, he knew it would be difficult to obtain the product on the open market. (Tr. 44.) The only supplier who would commit to supplying BRC with any substantial quantity of carbon black at the time was Cabot Corporation. (Tr. 46-50.) BRC was able to negotiate an agreement with Cabot to supply carbon black for the remainder of 2011, but Cabot refused to enter into a longer-term contract. (Tr. 46-50.)
BRC purchased 810, 000 pounds of carbon black from Cabot in 2011, paying $116, 066.56 over what it would have paid to Continental under the Supply Agreement, prior to any rebate. (Exs. 27, 72.) The price per pound that BRC paid to Cabot ranged from $.70 to $.73, while the price under the Supply Agreement prior to any rebate would have been $.56 to $.57. (Ex. 72.) In total, BRC purchased 2, 951, 350 pounds of carbon black in 2011 from Continental, Sid Richardson, and Cabot. (Exs. 27, 72.) The Court finds Cornwell's largely unchallenged ...