Archer Daniels Midland Co. v. Brunswick County

129 F. App'x 16
CourtCourt of Appeals for the Fourth Circuit
DecidedMarch 15, 2005
Docket04-1250
StatusUnpublished
Cited by3 cases

This text of 129 F. App'x 16 (Archer Daniels Midland Co. v. Brunswick County) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fourth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Archer Daniels Midland Co. v. Brunswick County, 129 F. App'x 16 (4th Cir. 2005).

Opinions

GREGORY, Circuit Judge.

This diversity action concerns a long-term contract for the sale of water between Archer Daniels Midland Company (“ADM”) and Brunswick County, North Carolina (“Brunswick County” or “the County”). In 1999 the County increased its rates as part of a plan to pay off debt incurred from efforts to expand the water system. ADM objected to the rates, then sued the County in the U.S. District Court for the Eastern District of North Carolina. The district court granted summary judgment to ADM for liability and damages and entered a judgment in the amount of $357,758 in compensatory damages and $58,264.64 in prejudgment interest. Brunswick County now appeals the court’s rulings against it. We affirm the ruling of the district court.

I.

To reveal the full context of the issues involved we quickly revisit the parties’ precontractual course of dealing, the express text of the contract, and the post-contractual course of performance.

[18]*18A. Pfizer and Brunswick County-

In the early 1970s, Brunswick County had no water system. Pfizer, Inc. (“Pfizer”) wished to run a citric acid manufacturing plant that would need large amounts of potable water. The parties negotiated a deal in 1973 by which Pfizer would build its plant in Southport, a town in Brunswick County, and defray significantly the water system’s costs by guaranteeing that its plant would be a large consumer of the County’s water. The County, in turn, built the water system and offered advantageous pricing for the water.

It appears from the record that the new water system quickly became insufficient and that, among other problems, the system’s inadequacies caused difficulties at Pfizer’s plant. As a result, in 1979 or 1980 the County decided to expand the water system and distribution facility. It secured Pfizer’s blessing by amending the original contract and approved a bond referendum to pay for the expansion. The parties call the first agreement and its amendment Phase I and Phase IA, respectively.

Soon afterwards the County began yet another expansion of its water system. This expansion — called Phase II — was completed in 1983 and was also funded with bonds. Once done, the County began to charge Pfizer rates that included costs associated with Phase II. Moreover, at some unknown point the County began to mix its accounts by paying an annual subsidy from its general (non-water system) funds in order to satisfy the debt service for Phase II. These actions led to a 1984 lawsuit quite similar to the one now before us: Pfizer sued the County for including Phase II costs in its rate calculations. On October 7, 1986, Pfizer and the County settled this lawsuit by signing the contract before us (“the contract”), which is effective until the year 2020.

B. The 1986 Contract

The contract establishes what should be a seamless and straightforward pricing structure. First, If 5 of the contract states that the County must always charge Pfizer the “Lowest Commercial Rate” (“LCR”) in effect at the time of-the water’s delivery. J.A. 21. The qualifier “commercial” is actually misleading, since If 4(b) clearly defines LCR as “the lowest price charged by the County to any user pm-chasing water for any purpose whatsoever.” J.A. 20.

Several conditional ceilings to the LCR exist in 115, but the only two now relevant are UH 5(d) and 5(f).1 Paragraph 5(d) establishes that the rate charged per 1,000 gallons will not exceed $1.50 times the Producer Price Index for Finished Goods (“PPI”) established “from May 1, 1985 to May 1 of the calendar year in which the rate for the forthcoming fiscal year is being determined.” J.A. 22. Paragraph 5(f) offers something like an exception to H 5(d). The bulk of this dispute concerns whether H 5(f) applies, and its meaning if it does. We thus quote H 5(f) at length:

Should the maximum charges as specified herein be insufficient to meet the Net Operating and Maintenance Expense for any fiscal year plus debt service ... relating only to Phases I and IA of the Water System (specifically excluding debt service ... relating to Phase II and debt service relating to any subsequent expansion of the Water System), the charges for all customers for the year in question shall be increased on an [19]*19equal percentage basis by the County (including increasing the maximum charges to Pfizer beyond that otherwise authorized by this Agreement) in order to raise sufficient funds to cover both such Net Operating and Maintenance Expense and Phase I and Phase LA debt service.

J.A. 22. Paragraph 5(f) is plainly structured as an “if, then” conditional. If (and only if) “the maximum charges as specified herein” are “insufficient” to meet the County’s “Net Operating and Maintenance Expense” (“NOME”) plus debt service only on Phases I and IA, then the charges for all customers “shall be increased on an equal percentage basis.” Id. (emphasis added). Paragraph 4(c) defines NOME in detail:

Net Operating and Maintenance Expense” shall mean the cost of raw water and other direct expenses associated with the operation and maintenance of the County’s Water System. The following are examples of such items: 1. Salaries 2. FICA taxes 3. Group Insurance (Medical) 4. Payments to retirement fund 5. Professional service 6. Postage 7. Telephone 8. Utilities 9. Travel and Training 10. Equipment repairs 11. Vehicle repairs 12. Equipment rental 13. Chemicals 14. Automotive supplies 15. Department supplies 16. Laboratory supplies 17. Uniforms 18. Contracted services 19. Dues and subscriptions 20. Insurance 21. Capital equipment used to operate or maintain the Water System, but excluding any equipment to expand the County’s Water System. Excluded from Net Operating Expense are all (1) debt service obligations, (ii) all expenses which are reimbursed by special fees, such as tap on fees, (in) any funding of reserves for other than operation and maintenance items; and (iv) for the purposes of interpreting 4(c)(21) above, any costs of capital investment to expand or extend the Water System.

J.A. 20-21.

In sum, the contractual text protects Pfizer by limiting the rates the County can charge it to an amount that is (1) never more than any other customer is charged, (2) unless certain conditions are met, no more than (for our purposes) the PPI-adjusted price of 115(d), and (3) in any event, never more than a rate that would be “sufficient” to meet the “cost of raw water and other direct expenses associated with the operation and maintenance of the County’s Water System” when coupled with other customers’ charges (see infra Part III.A). The County, however, may (1) set the LCR at any amount up to the 115(d) ceiling it chooses. Additionally, (2) by requiring Pfizer to contribute “on an equal percentage basis,” 115(f) aids the County in obtaining an amount equal to the water system’s NOME.

C. The Parties’ Pre-Litigation Course of Performance

In 1990, Pfizer sold its manufacturing plant to ADM, making ADM a successor in interest to the contract. As the district court found, we have no reason to believe that the contractual relationship between the County and Pfizer/ADM was anything but harmonious after the contract was signed until the 1999 rate increases. Throughout this time, Pfizer and ADM purchased immense amounts of water from the County; in fact, ADM notes that it is the County’s largest water customer.

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Cite This Page — Counsel Stack

Bluebook (online)
129 F. App'x 16, Counsel Stack Legal Research, https://law.counselstack.com/opinion/archer-daniels-midland-co-v-brunswick-county-ca4-2005.