Certainteed Gypsum Nc, Inc. v. Duke Energy Progress, LLC

2018 NCBC 90

• Court: North Carolina Business Court
• Decided: August 28, 2018
• Docket: 17-CVS-395
• Status: Published

Opinion

CertainTeed Gypsum NC, Inc. v. Duke Energy Progress, LLC, 2018 NCBC 90.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION PERSON COUNTY 17 CVS 395

CERTAINTEED GYPSUM NC, INC.,

Plaintiff,

v. OPINION & FINAL JUDGMENT DUKE ENERGY PROGRESS, LLC,

Defendant.

1. THIS MATTER came on for trial without a jury before the undersigned

commencing on July 9, 2018. The Court now issues its Opinion & Final Judgment.

Brooks, Pierce, McLendon, Humphrey, & Leonard, LLP by Jim W. Phillips, Jr., Brian C. Fork, and Kimberly M. Marston, for Plaintiff.

Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, LLP by Donald H. Tucker, Jr. and Isaac A. Linnartz, for Defendant.

Gale, Judge.

I. INTRODUCTION

2. This litigation involves disputes between Plaintiff CertainTeed Gypsum

NC, Inc. (“CTG”), a wallboard manufacturer, and Defendant Duke Energy Progress,

LLC (“DEP”), a public utility that operates plants to produce electricity, arising from

their Second Amended and Restated Supply Agreement (“2012 Agreement”),

regarding supply and acceptance of synthetic gypsum, a byproduct of coal-fired

electric power plants and a raw material used to manufacture wallboard. The parties

define the synthetic gypsum that meets the contractual specifications as “Gypsum

Filter Cake.” 3. CTG and DEP first entered into a supply agreement in 2004 (“2004

Agreement”). At that time, DEP was planning to install flue gas desulfurization

systems that would produce synthetic gypsum at its coal-fired plants in Roxboro,

North Carolina (“Roxboro Plant”) and Mayo, North Carolina (“Mayo Plant”), and CTG

was seeking to build its first wallboard-manufacturing plant in the Southeast United

States. CTG and DEP executed the Amended and Restated Supply Agreement in

2008 (“2008 Agreement”) following CTG’s decision to delay construction of its plant

because of the 2008 economic downturn commonly referred to as the “Great

Recession.” The parties executed the 2012 Agreement when CTG was constructing

its plant. The Court may refer to the 2004 Agreement, the 2008 Agreement, and the

2012 Agreement collectively as the “Supply Agreements.”

4. A drop in natural gas prices has required DEP to decrease utilization of

its coal-fired plants, resulting in its decreased production of synthetic gypsum. This

decreased production has resulted in a dispute as to the quantity term of the 2012

Agreement, which has led to other disputes as to the terms and obligations of the

2012 Agreement.

5. The parties’ disputes fall within four principal categories. The parties

disagree: (1) as to the Minimum Monthly Quantity (“MMQ”), of Gypsum Filter Cake

that DEP is required to supply and CTG is required to accept, including whether

Gypsum Filter Cake means only synthetic gypsum produced at DEP’s Roxboro Plant

and Mayo Plant; (2) whether DEP has met its contractual obligation to use

“commercially reasonable efforts” to maintain a stockpile (“Stockpile”) of 250,000 net dry tons of Gypsum Filter Cake and to furnish a replenishment plan (“Replenishment

Plan”) now that the Stockpile has fallen below that volume; (3) whether DEP is now

excused from its contractual obligations because its performance is inconsistent with

its primary purpose as a regulated public utility (“Primary Purpose”); and (4) if DEP’s

performance is not excused, whether CTG will be limited to an exclusive optional

remedy of terminating the 2012 Agreement and recovering liquidated damages if

DEP discontinues its supply obligation as defined by the 2012 Agreement.

II. PROCEDURAL HISTORY

6. CTG initiated this action on June 30, 2017, by filing a Complaint, which

sought only a declaratory judgment of the quantity term in the 2012 Agreement. (See

Compl., ECF No. 19.)

7. On August 11, 2017, DEP filed its Notice of Designation As Mandatory

Complex Business Case under N.C. Gen. Stat. § 7A-45.4. (ECF No. 6.) On August

11, 2017, this matter was designated as a mandatory complex business case by the

Chief Justice. (ECF No. 1.) On August 14, 2017, the matter was assigned to the

undersigned. (ECF No. 2.)

8. On August 24, 2017, CTG moved for summary judgment prior to the

close of the pleadings, contending that it was entitled to its requested declaration as

a matter of law based on the clear contract language of the 2012 Agreement. (ECF

No. 11.)

9. On September 21, 2017, the Court heard argument on Plaintiff’s Motion

for Summary Judgment. On September 28, 2017, the Court provided an informal oral ruling that it would deny Plaintiff’s Motion for Summary Judgment because it

found the relevant contract provisions to be ambiguous, requiring the Court to

consider extrinsic evidence to determine the intent of the parties.

10. The parties proceeded with expedited discovery. The Court has noted

that the parties have consistently acted in an exemplary and professional manner to

move forward to an early trial and have only sought court intervention when their

manifest good-faith efforts were able to narrow but not fully resolve disputes as to

the scope or timing of discovery. Their conduct throughout the litigation is a clear

example of the highest standards of professionalism to which trial lawyers should

aspire.

11. On January 29, 2018, with leave of the Court, CTG filed its Amended

Complaint to expand its request for declaratory judgment and seek additional relief,

including compensatory damages, specific performance, and attorneys’ fees and costs.

(ECF No. 53.) CTG now asks the Court to declare that:

a. DEP is required to supply the MMQ of 50,000 Net Dry Tons of

Gypsum Filter Cake for the entire term of the 2012 Agreement,

subject to minor fluctuations permitted under Section 3.1;

b. DEP’s supply obligation is not limited to Gypsum Filter Cake

produced at its Roxboro Plant and Mayo Plant, and, as necessary,

DEP may be required to obtain Gypsum Filter Cake from

alternative sources at its own expense; c. DEP is contractually obligated to use commercially reasonable

efforts to maintain the Stockpile at 250,000 net dry tons of

Gypsum Filter Cake and that the Replenishment Plan DEP

prepared based on DEP’s improper interpretation of the MMQ did

not meet its contractual obligation; and

d. CTG continues to have the election to pursue specific performance

rather than termination in the event DEP takes actions that

would trigger the optional termination remedy.

(See Am. Compl. ¶¶ 71, 128.)

12. When filing its Amended Complaint on January 29, 2018, CTG also

moved for a preliminary injunction. The Court was not required to hear this motion

after being advised that the parties had reached an interim agreement, and the Court

provided an expedited peremptory trial date.

13. On March 16, 2018, DEP filed its Answer to Plaintiff’s Amended

Complaint and Counterclaim, to which it later added a request for attorneys’ fees and

costs. (See ECF No. 91.) DEP asks the Court to declare that:

a. DEP’s supply obligation is limited to Gypsum Filter Cake

produced at its Roxboro Plant and Mayo Plant even if that

production is less than the contractual MMQ, (Countercl. ¶ 25,

ECF No. 124);

b. DEP is now excused from any supply obligation because its

continued supply of Gypsum Filter Cake is inconsistent with its Primary Purpose as a regulated public utility, (Countercl. ¶ 25);

and

c. If DEP’s supply obligation is not otherwise excused, the remedy

of termination with the recovery of liquidated damages pursuant

to Section 6.3 of the 2012 Agreement becomes CTG’s exclusive

remedy once DEP takes a contractually-defined action that

triggers that section. (Countercl. ¶ 32.)

14. On May 9, 2018, DEP moved for partial judgment on the pleadings as to

its request that the Court declare that CTG would be limited to an exclusive remedy

once the termination remedy of Section 6.3 of the 2012 Agreement is triggered. After

briefing, the Court orally advised the parties that it would reserve its consideration

of this issue until trial.

15. On June 26, 2018, the Court issued an order incorporating its prior oral

rulings on Plaintiff’s Motion for Summary Judgment and Defendant’s Motion for

Partial Judgment on the Pleadings. (ECF No. 115.)

16. The parties waived their rights to a jury trial and consented to a trial

held outside the county of origin. The trial commenced on July 9, 2018, at the North

Carolina Business Court, 201 North Greene Street, Greensboro, North Carolina. The

Court admitted seventy-three exhibits and received testimony from witnesses who

appeared at trial and by video depositions.

17. The parties submitted proposed findings of fact and conclusions of law

on July 30, 2018, and all issues and claims are now ripe for determination. III. GENERAL RULES OF CONTRACT CONSTRUCTION

18. When construing the 2012 Agreement, the Court has been guided by and

has adhered to the following rules of contract construction. Although these standards

may be properly considered, and are adopted, as part of the Court’s Conclusions of

Law, they are set out here to provide context for the Court’s Findings of Fact. After

making Findings of Fact, the Court makes further Conclusions of Law, which apply

these rules of construction to the facts as the Court has found them to be.

19. “Whenever a court is called upon to interpret a contract its primary

purpose is to ascertain the intention of the parties at the moment of its execution.”

Lane v. Scarborough, 284 N.C. 407, 409–10, 200 S.E.2d 622, 624 (1973). To do so, the

Court must first look to the language of the contract and determine if it is clear and

unambiguous. Where “the plain language of a contract is clear, the intention of the

parties is inferred from the words of the contract.” Walton v. City of Raleigh, 342

N.C. 879, 881, 467 S.E.2d 410, 411 (1996). If the terms of the contract are

unambiguous, then the court must interpret the contract as a matter of law and

“cannot look beyond the terms of the contract to determine the intention of the

parties.” Stovall v. Stovall, 205 N.C. App. 405, 410, 698 S.E.2d 680, 684 (2010)

(quoting Lynn v. Lynn, 202 N.C. App. 423, 431, 698 S.E.2d 198, 205 (2010)).

20. In some instances, the intent of the parties cannot be determined solely

from the words of the contract. “An ambiguity exists in a contract if the ‘language of

a contract is fairly and reasonably susceptible to either of the constructions asserted

by the parties.’” Crider v. Jones Island Club, Inc., 147 N.C. App. 262, 267, 554 S.E.2d 863, 866–67 (2001) (quoting Barett Kays & Assocs., P.A. v. Colonial Bldg. Co., 129

N.C. App. 525, 528, 500 S.E.2d 108, 111 (1998)). “[I]f there is any uncertainty as to

what the agreement is between the parties, a contract is ambiguous.” Crider, 147

N.C App. at 267, 554 S.E.2d at 867.

21. If a court finds a contract ambiguous, the intent of the parties becomes

a question of fact. In that instance, “the language used, the subject matter, the end

in view, the purpose sought, and the situation of the parties at the time” can all aid

the factfinder in determining the intentions of the parties. Cordaro v. Singleton, 31

N.C. App. 476, 479, 229 S.E.2d 707, 709 (1976); see also Century Commc’ns, Inc. v.

Hous. Auth. of Wilson, 313 N.C. 143, 146, 326 S.E.2d 261, 264 (1985) (noting that

where contractual “language is uncertain or ambiguous, the court may consider all

the surrounding circumstances, including those existing when the document was

drawn, those existing during the term of the instrument . . . , and the construction

which the parties have placed on the language, so that the intention of the parties

may be ascertained and given effect”). The Court should review “the entire

instrument” and “cannot reject what the parties inserted or insert what the parties

elected to omit.” Weyerhaeuser Co. v. Carolina Power & Light Co., 257 N.C. 717, 719,

127 S.E.2d 539, 541 (1962). The terms of a contract “‘are to be harmoniously

construed, and if possible, every word and every provision is to be given effect.’”

WakeMed v. Surgical Care Affiliates, LLC, 243 N.C. App. 820, 824, 778 S.E.2d 308,

312 (2015) (quoting In re Foreclosure of a Deed of Trust, 210 N.C. App. 409, 415, 708

S.E.2d 174, 178 (2011)). 22. “[T]he law imputes to a person an intention corresponding to the

reasonable meaning of his words and acts.” Howell v. Smith, 258 N.C. 150, 153, 128

S.E.2d 144, 146 (1962). The “‘legal consequences are not dependent upon the

impressions or understandings of one alone of the parties to it. It is not what either

thinks, but what both agree.’” N. & W. Overall Co. v. Holmes, 186 N.C. 428, 431, 119

S.E. 817, 818–19 (1923) (quoting Prince v. McRae, 84 N.C. 674, 675 (1881)). “[M]ental

assent to the promises in a contract is not essential.” Howell, 258 N.C. at 153, 128

S.E.2d at 146 (citing 17 C.J.S., Contracts § 32).

23. To determine the true intent of the parties, courts should consider “all

the surrounding circumstances,” especially “the construction which the parties have

placed on the language” of the contract prior to the parties’ dispute. Century

Commc’s, 313 N.C. at 146, 326 S.E.2d at 264. This common law principle is embodied

in the Uniform Commercial Code, which recognizes that course of performance,

course of dealing, and usage of trade may also explain or supplement the written

agreement. N.C. Gen. Stat. § 25-2-202 (2017). The parties’ actual course of

performance may be the “best indication” of what the parties “intended the writing

to mean.” Id. § 25-2-202, Official cmt. 2.

24. The Supreme Court of North Carolina has stated that “no court can go

wrong by adopting the ante litem motam practical interpretation of the parties, for

they are presumed to know best what was meant by the terms used in their

engagements.” Heater v. Heater, 53 N.C. App. 101, 105, 280 S.E.2d 19, 22 (1981)

(citing Cole v. Fibre Co., 200 N.C. 484, 488, 157 S.E.2d 857, 859 (1931)). The Supreme Court of North Carolina has explained that “parties are presumed to know the intent

and meaning of their contract better than strangers,” therefore when parties “have

placed a particular interpretation on their contract after executing it, the courts

ordinarily will not ignore that construction which the parties themselves have given

it prior to the differences between them.” Davis v. McRee, 299 N.C. 498, 502, 263

S.E.2d 604, 607 (1980).

25. “Evidence of statements and conduct by the parties after executing a

contract is admissible to show intent and meaning of the parties. ‘The conduct of the

parties in dealing with the contract indicating the manner in which they themselves

construe it is . . . controlling in its construction by the court.’” Heater, 53 N.C. App.

at 104, 280 S.E.2d at 21–22 (quoting Bank v. Supply Co., 226 N.C. 416, 432, 38 S.E.2d

503, 514 (1946)); see also Joyner v. Adams 87 N.C. App. 570, 574, 361 S.E.2d 902, 904

(1987) (“Evidence of the parties’ purposes in entering a contract and their conduct

after the agreement is some evidence of their intent.”).

26. When faced with ambiguity, the Court cannot substitute its own intent,

but can only enforce the agreement reached by the parties. “Under longstanding

North Carolina law, a valid contract requires (1) assent; (2) mutuality of obligation;

and (3) definite terms.” Charlotte Motor Speedway, LLC v. Cty. of Cabarrus, 230 N.C.

App. 1, 7, 748 S.E.2d 171, 176 (2013). “It is a well-settled principle of contract law

that a valid contract exists only where there has been a meeting of the minds as to

all essential terms of the agreement.” Northington v. Michelotti, 121 N.C. App. 180,

184, 464 S.E.2d 711, 714 (1995). The parties “must assent to the same thing in the same sense, and their minds must meet as to all the terms.” MCB, Ltd. v. McGowan,

86 N.C. App. 607, 608, 359 S.E.2d 50, 51 (1987).

IV. FINDINGS OF FACT

27. The Court makes the following findings of fact based on the testimony

presented and documentary evidence admitted. The evidence presents mixed issues

of law and fact. Any determination later stated as a conclusion of law that should

have been stated as a finding of fact is incorporated in these Findings of Fact.

28. The Court incorporates by reference the parties’ factual stipulations

filed on July 6, 2018, (ECF No. 125), and the parties’ stipulations stated in the Final

Pretrial Order entered on July 9, 2018. (ECF No. 129).

29. While the Court cites specifically to certain portions of the record in this

Opinion & Final Judgment, the citations are for ease of reference. Those citations do

not represent all the evidence upon which these Findings of Fact are based. The

Court has considered the credibility of the witnesses in light of all evidence presented.

A. The Parties

30. CTG is a Delaware corporation that manufactures and sells wallboard,

commonly referred to as drywall. CTG is the successor-in-interest to BPB NC Inc.,

which negotiated and executed the 2004 Agreement. (Factual Stipulations ¶ 1.) 31. DEP is a North Carolina limited-liability company. DEP is the

successor-in-interest to Progress Energy, Inc. and Carolina Power & Light Company.1

(Factual Stipulations ¶ 2.)

32. DEP owns and operates multiple power-generating plants in North

Carolina and other states. DEP has different fuel sources for its power-generating

plants—some plants are powered by natural gas and others are powered by coal.

Some plants have multiple power-generating units. DEP’s coal-fired Roxboro Plant

has four generating units, and its coal-fired Mayo Plant has one generating unit.

33. DEP is a regulated public utility, and as such is required to provide

“reliable and economical utility service[s].” N.C. Gen. Stat. § 62-2(3) (2017). DEP

refers to this requirement as its “Primary Purpose.” (See Ex. 15 § 3.9.) DEP is

required to commit and dispatch its power-generating units in an economical order,

known as the “Least-Cost-Dispatch Requirement” or “Economic Dispatch.” DEP

considers multiple factors when determining which units to commit and dispatch,

including the load forecast, what generation assets are available, the heat rates of

those assets, the fuel costs of those assets, and the reliability of those assets.

Essentially, DEP commits the least expensive unit first and then, as it needs more

electricity, brings the next least expensive unit online.

1 Each of the Supply Agreements were executed by predecessors of one or both of the parties.

The parties agree that CTG and DEP are bound by the 2012 Agreement. For simplicity, throughout this Opinion & Final Judgment when referring to the parties to the Supply Agreements, the Court will refer to CTG and DEP, acknowledging that the predecessor companies were the actual parties to the earlier agreements. 34. DEP and Duke Energy Carolinas (“DEC”) entered into a joint dispatch

agreement (“Joint Dispatch Agreement”), which is an operating protocol established

as part of the merger between the two companies that allows DEP and DEC to

aggregate their resources in determining the least-cost way of meeting their

aggregate demand.

B. The Beginning of CTG and DEP’s Contractual Relationship and the 2004 Agreement

35. Federal legislation, commonly called the Clean Air Act, and related

North Carolina legislation, known as the Clean Smokestacks Act, required DEP in

the 1990s and early 2000s to install flue gas desulfurization systems (“FGD

Systems”), commonly referred to as “scrubbers,” at its North Carolina coal-fired

electric power-generating plants. (See Ex. 111.) The scrubbing process removes

pollutants from the emissions generated during the coal-combustion process and

generates significant quantities of synthetic gypsum as a byproduct. DEP generally

tries to find a beneficial reuse for its byproducts.

36. Around mid-2002, Danny Johnson (“Johnson”), a professional project

manager at DEP, was searching for ways DEP could beneficially reuse the synthetic

gypsum it expected to produce as a byproduct of the FDG Systems at DEP’s Roxboro

Plant and Mayo Plant. Johnson learned that synthetic gypsum is used to

manufacture wallboard, to create cement, and as an agriculture soil amendment.

(See Ex. 111.) At that time, DEP’s Roxboro Plant and Mayo Plant were base-loaded

power plants, meaning they were both high in the Economic Dispatch order and

projected to be running constantly, resulting in the production of large quantities of synthetic gypsum. At one point in Johnson’s search, DEP estimated that by 2010,

when the FGD Systems would be fully operational, the Roxboro Plant and Mayo Plant

combined would produce 1.5 million tons of synthetic gypsum annually. (Ex. 111.)

37. DEP is not a broker of synthetic gypsum, nor does it have any use for

synthetic gypsum in its normal operations. Thus, it needed to find a cost-effective

method to beneficially reuse the synthetic gypsum. Absent such a use, DEP would

incur significant costs to landfill the synthetic gypsum, which Johnson estimated to

be approximately five dollars per ton. (Ex. 111.)

38. Around that same time, Peter Mayer (“Mayer”), CTG’s Vice President of

Technical Services, was in charge of finding a location in the Southeast United States

for CTG to construct a wallboard-manufacturing plant (“CTG Plant”). Gypsum

comprises about 90% of the raw materials needed to produce wallboard. Natural

gypsum is not readily available in the Southeast. In searching for a location, CTG’s

main priority was finding a secure source of large quantities of synthetic gypsum.

CTG needed to construct a plant near a supply of synthetic gypsum, because synthetic

gypsum is heavy and extremely costly to transport. Mayer identified DEP’s Roxboro

Plant as a potential source of a large supply of synthetic gypsum.

39. Johnson learned of CTG’s interest. He prepared a summary to his

supervisors, stating that, after meeting with “all major wallboard manufacturers to

understand their synthetic gypsum needs,” he believed CTG “provided the most

attractive opportunity through their desire to locate a wallboard facility at Roxboro [and] pay for the gypsum material, and [because CTG] had a strong balance sheet.”

(Ex. 111.)

40. Mayer and Johnson then pursued discussions in an effort to fashion a

mutually beneficial relationship, whereby CTG would build a manufacturing plant

directly adjacent to DEP’s Roxboro Plant. The intent was for DEP to achieve a

beneficial reuse for its synthetic gypsum and CTG to have a secure supply of synthetic

gypsum. At that time, CTG contemplated that its plant, upon completion and

running at full capacity, would require approximately 600,000 tons of net dry

synthetic gypsum annually.

41. DEP agreed to sell 120 acres of land adjacent to the Roxboro Plant to

CTG, and CTG agreed to purchase such land and construct the CTG Plant.

42. Both CTG and DEP sought a long-term reciprocal commitment. Mayer

indicated that multi-year supply contracts are typical in the wallboard industry.

Both parties were motivated by long-range financial considerations. DEP was

making a substantial investment in its FGD Systems and was facing millions of

dollars in costs if it was unable to find a reliable, beneficial use for its synthetic

gypsum byproduct. DEP also expected to incur the expense of constructing a conveyor

system to deliver the Gypsum Filter Cake to the CTG Plant. (Ex. 5 § 2.2.) CTG

contemplated a substantial capital investment to build the CTG Plant. When it

decided to construct the CTG Plant, CTG knew that it would be dependent on DEP

for its supply of synthetic gypsum at that plant because there was no other supplier in close proximity, transportation costs were high, and there was no road or rail

infrastructure to provide CTG an ability to access alternative sources.

43. DEP and CTG executed their first Supply Agreement—the 2004

Agreement—on February 12, 2004. Mayer and Johnson were the primary negotiators

for the 2004 Agreement. Mayer was assisted by fellow CTG employees John College

(“College”) and Rob Morrow (“Morrow”), Vice-President of Supply Chain

Management. The 2004 Agreement was, in substantial part, a forward-looking

agreement, in that, at the time of its execution, neither party had made the financial

investments they contemplated.

44. In order for CTG and DEP to induce the other’s investment and to

accommodate their ongoing needs, both parties determined that it was in their

respective best interests to enter a long-term relationship and to make long-term

commitments in exchange for long-term opportunities. The evidence is clear that

DEP determined that entering a long-term agreement was in its best interest and

consistent with its Primary Purpose as a regulated public utility.

45. The parties agreed to a twenty-year initial term measured “from the

date on which the [CTG Plant] accepts the first delivery of Gypsum Filter Cake from

[DEP].” (Ex. 5 § 8.1.) The 2004 Agreement further allowed for two additional

extension periods of ten years each. (Ex. 5 § 8.2.)

46. The 2004 Agreement established a timeline in which DEP would

construct the FGD Systems for the four Roxboro Plant units and the one Mayo Plant

unit. (See Ex. 5 § 2.1.) DEP estimated that the first FGD Systems would begin operation in the Spring of 2007 and that the final FGD Systems would be operational

by the Spring of 2009. (See Ex. 5 § 2.1.) The parties agreed that, if DEP failed to

complete the FGD Systems within six months of the completion dates agreed to and,

as a result of such failure, DEP was unable to supply the MMQ of Gypsum Filter

Cake after the CTG Plant was complete and ready to begin production, then CTG

“shall be entitled to the remedies set forth in Section 6.2 of this Supply Agreement.”

(Ex. 5 § 2.1.) The Court finds that this provision was specific to DEP’s potential

failure to install its FGD Systems, and that the parties did not intend for this

language to address, one way or the other, how Section 6.2 would apply for breaches

occurring after the FGD Systems were installed.

47. The 2004 Agreement envisioned that the CTG Plant would be

operational by late 2007 or early 2008. (Ex. 5 § 2.3.)

48. The 2004 Agreement defined the MMQ as “50,000 Net Dry Tons of

Gypsum Filter Cake to be delivered on a monthly basis in accordance with Section

3.1.” (Ex. 5 § 1.23.) Accordingly, the 2004 Agreement defined the MMQ in the

agreement’s definitional article and Section 3.1 provided the method of delivery and

the time period when the MMQ would be implemented. DEP’s obligation to deliver

and CTG’s obligation to accept Gypsum Filter Cake would begin once the CTG Plant

was constructed. A lesser quantity of 30,000 net dry tons would be delivered and

accepted during a six-month start-up period (“Start-Up Period”), after which the

MMQ would apply. (Ex. 5. § 1.33; see Ex. 5 § 3.1.) Section 3.1 allowed for a

permissible monthly variance from the MMQ, 10% up or down, so long as the monthly average for any twelve-month period after the Start-Up Period was approximately

equal to the MMQ of 50,000 net dry tons. (Ex. 5 § 3.1.) The 2004 Agreement

recognized that DEP may produce more Gypsum Filter Cake than the MMQ, and

such amount was defined as “Excess Gypsum,” in which CTG was given the first

refusal rights to purchase, and DEP had the first refusal rights to supply. (See Ex. 5

§ 3.5.)

49. The 2004 Agreement also provided that DEP “will build and use

reasonable efforts to maintain a 300,000 Net Dry Ton Gypsum Filter Cake stockpile.”

(See Ex. 5 § 2.2.)

50. The parties set forth the price at which CTG would purchase and DEP

would sell Gypsum Filter Cake and the specific quality specifications for the Gypsum

Filter Cake. (See Ex. 5 §§ 3.2, 4.1.)

51. The 2004 Agreement included an article defining respective remedies

for failures to deliver or accept Gypsum Filter Cake. (See Ex. 5 §§ 6.1–6.5.) It also

included an exclusive remedies clause. (Ex. 5 § 9.4.) In substantial part, those

remedy provisions were carried forward in the 2008 Agreement and the 2012

Agreement.

52. The parties also agreed that “[i]f a legal action is initiated by any Party

to this Agreement against another . . . any and all fees, costs, and expenses reasonably

incurred by each successful Party . . . shall be the obligation of and shall be paid or

reimbursed by the unsuccessful Party.” (Ex. 5 § 16.7; see also Ex. 15 § 16.7.) This

section remained unchanged in the 2008 Agreement and the 2012 Agreement. C. The 2008 Agreement

53. The parties never actually delivered and accepted Gypsum Filter Cake

under the 2004 Agreement before it was superseded by the 2008 Agreement.

54. DEP began installing the FGD Systems in 2007 as scheduled. However,

CTG desired to delay its plant construction because of the adverse effect of the 2007

housing market crash and the Great Recession. But CTG did not abandon its

ultimate goal to build its plant and establish a presence in the Southeast market;

therefore, CTG needed to maintain its relationship with DEP in order to ensure a

secure supply of synthetic gypsum once it built the CTG Plant.

55. On December 20, 2007, CTG contacted DEP in an effort to secure an

agreement to maintain the supply agreement but delay construction of the CTG

Plant. (See Ex 16.) CTG assured DEP that it “remain[ed] committed to the

construction and operation of the plant with a start of production before November

2011.” (Ex. 16, at 1.) CTG further assured DEP that it would take any actions

necessary to preserve the relationship, including taking steps to “ensure that we meet

our obligations to accept synthetic gypsum under the supply agreement, that we do

not add additional financial burden to your organization and that we do not impair

the operations of the power plants.” (Ex. 16, at 2.)

56. Although DEP expressed frustration with CTG’s delay, it ultimately

agreed to negotiate a revised agreement, and proposed fourteen terms it wanted to

discuss, including CTG paying to expand the Stockpile storage capacity from 300,000 tons to 650,000 tons and increasing CTG’s purchase obligations “to a level at or near

[CTG’s] Plant’s capacity.” (Ex. 17 ¶ 10; see Ex. 17 ¶ 5.)

57. The primary negotiators for the 2008 Agreement were Morrow, on

behalf of CTG, and for DEP Barbara Coppola (“Coppola”), a Coal Byproducts and

Reagents Manager, and Daniel Mottola (“Mottola”), a Byproducts Specialist.

Negotiations leading to the 2008 Agreement occurred between January 2008 and

March 2008.

58. The 2008 Agreement became effective on March 28, 2008. (Ex. 6, at 1.)

Similar to the 2004 Agreement, the parties agreed that the 2008 Agreement would

“expire twenty (20) years from the date on which the [CTG Plant] accepts the first

delivery of Gypsum Filter Cake from [DEP]” (“2008 Term”). (Ex. 6 § 8.1.)

59. The 2008 Agreement eliminated the Start-Up Period defined in the 2004

Agreement and provided that CTG’s obligation to accept Gypsum Filter Cake would

begin “on the earlier of (a) November 1, 2008 or (b) when the Loading Facility is in

Commercial Operation . . . .,” each of which were before the CTG Plant would be

operational. (Ex. 6 § 3.1.) Once CTG’s obligation was triggered, and for the

remainder of the 2008 Term, CTG was required to accept and DEP was required to

deliver the MMQ of 50,000 net dry tons of Gypsum Filter Cake. (See Ex. 6 § 3.1.)

60. CTG did not have its own storage facility in Roxboro, North Carolina.

Thus, prior to the CTG Plant being operational, CTG had to take steps to transport

and utilize or dispose of any Gypsum Filter Cake it was required to accept. D. CTG and DEP’s Performance Under the 2008 Agreement

61. CTG first accepted Gypsum Filter Cake on May 1, 2009. CTG

constructed rail facilities in Roxboro, North Carolina, and at its Toronto and

Montreal, Canada wallboard-manufacturing plants, which allowed CTG to transport

and then use the Gypsum Filter Cake.

62. The CTG Plant began operations on March 28, 2012. Between May 1,

2009 and March 28, 2012, CTG accepted Gypsum Filter Cake and removed it from

Roxboro by: (1) shipping it by rail from the Roxboro Plant to CTG’s other wallboard-

manufacturing plants; (2) landfilling both at a third-party landfill and at DEP’s on-

site landfill; and (3) subsidizing DEP’s sale of synthetic gypsum to third parties.

Ultimately, CTG spent over $32,800,000 prior to March 28, 2012 in an effort to take

and dispose of Gypsum Filter Cake before the CTG Plant became operational. (See

Ex. 142, at 9.) Even after the CTG Plant began operations, CTG continued to spend

money to dispose of or transport Gypsum Filter Cake until it was able to fully utilize

its deliveries.

63. Throughout this period, DEP did not demand and CTG did not typically

accept the contractual MMQ. Between May 2009 and August 2012, CTG accepted

the MMQ eight times. (Factual Stipulations, Ex. 1.)

64. During this period, DEP consistently maintained that the 2008

Agreement obligated CTG to accept the MMQ. (See Exs. 124–25.) However, rather

than demanding CTG’s full compliance, DEP worked cooperatively with CTG to limit

CTG’s acceptance to only levels necessary to maintain the Stockpile at a safe volume. 65. Between 2008 and 2011, there was a decreased demand for wallboard

as a result of the Great Recession, causing CTG to have more synthetic gypsum than

it could utilize at its various manufacturing plants. David Engelhardt (“Engelhardt”),

CTG’s Senior Vice President of Operations, who later became CTG’s President,

testified that at that time, and for a period thereafter, CTG’s need for synthetic

gypsum was significantly less than its contractual obligations to purchase synthetic

gypsum, both from DEP and pursuant to other supply agreements. Thus, CTG’s

management tried to address concerns regarding its inability to meet those

contractual obligations. On March 6, 2009, CTG management considered a

presentation captioned “Roxboro & Moundsville Excess DSG—A Mountain of DSG.”

(Ex. 35.) The presentation reflects that CTG hoped to modify its agreements with

DEP to accept quantities “at production rate[s] rather than obligation rate[s].” (Ex.

35, at 5.) Essentially, CTG wanted to shift its acceptance obligation under the

agreement from a fixed MMQ to a requirement that would vary based on DEP’s actual

synthetic gypsum production and CTG’s needs. (Ex. 35, at 5.)

66. Engelhardt testified that CTG expected that it would be able to accept

and use the MMQ from DEP once the CTG Plant was fully operational, even if it had

an oversupply for other plants, in part because CTG planned to redirect

manufacturing from older plants to the new CTG Plant, with its more efficient

manufacturing capabilities.

67. On November 19, 2009, the parties amended the 2008 Agreement by

executing the First Amendment to Amended and Restated Supply Agreement (“First Amendment”), pursuant to which CTG agreed to incur the expense to landfill at least

80,000 tons of Gypsum Filter Cake at the DEP on-site landfill and remove sufficient

tonnage from the Stockpile to reduce it to less than 600,000 tons. (See Ex. 59 ¶ 3.)

68. The parties further amended the 2008 Agreement by executing a Second

Amendment to Amended and Restated Supply Agreement (“Second Amendment”) on

June 25, 2010. (See Ex. 14.) The parties agreed in the Second Amendment that, for

the remainder of 2010, CTG would only be obligated to accept the amount of Gypsum

Filter Cake actually produced at the Roxboro Plant and Mayo Plant. (See Ex. 14 ¶ 3.)

The Second Amendment also provided that CTG would remove and incur the cost to

landfill 200,000 net dry tons of Gypsum Filter Cake from the Stockpile. (See Ex. 14

¶ 2.)

E. The 2012 Agreement

69. CTG began constructing the CTG Plant in 2011. Construction presented

some operational issues, including the method that would be used to transport

Gypsum Filter Cake from DEP to the CTG Plant. The parties agreed that CTG could

build, operate, and maintain equipment at DEP’s storage facility to facilitate

delivering Gypsum Filter Cake to the CTG Plant directly from the Stockpile. (See Ex.

28; Ex. 15 § 2.2.1.) The 2008 Agreement had to be modified, at a minimum, to

accommodate these operational issues.

70. Between June 2011 and February 2012, Coppola and Engelhardt

negotiated the 2012 Agreement with an effective date of August 1, 2012. As CTG had

accepted its first delivery of Gypsum Filter Cake on May 1, 2009, the term of the 2012 Agreement was fixed at twenty years from that date. Accordingly, the 2012

Agreement is in effect until April 2029. (Ex. 15 § 8.1; see also Ex. 28, at 2.) The 2012

Agreement superseded the 2004 Agreement and the 2008 Agreement while carrying

forward much of the substance of the earlier agreements without changes.

71. Engelhardt was the first to propose a draft of the 2012 Agreement.

Consistent with the objective reflected in the March 6, 2009 presentation considered

by CTG management, Engelhardt proposed amending the MMQ to shift from a fixed

contractual supply obligation to one that varied with the parties’ variable business

operations. DEP rejected most of Engelhardt’s changes, including his MMQ proposal,

expressing a preference to maintain the supply quantity as it existed.

72. The Court now further makes its findings regarding the four major areas

of dispute, which concentrate on these sections of the 2012 Agreement: Section 3.1

(MMQ); Section 2.2.3 (Stockpile); Section 3.9 (Primary Purpose); and Article 6, read

in conjunction with Section 9.4 (remedies).

F. Disputed Terms of the 2012 Agreement

(1) Section 3.1—The Minimum Monthly Quantity

73. The parties’ dispute as to the quantity term of the 2012 Agreement

centers on Section 3.1.

74. Section 3.1 as adopted in the 2012 Agreement reads:

Commencing on May 1, 2009 and continuing until the earlier of (i) the Commercial Operation Date or (ii) October 1, 2012, [DEP] agrees to sell and deliver to CertainTeed and CertainTeed agrees to purchase and accept from [DEP] at least 50,000 Net Dry Tons of Gypsum Filter Cake per month, subject to the allowance for fluctuations as set forth in this paragraph, and except as may otherwise be excused by the terms of this Revised Agreement. (The volume obligations set forth herein may be referred to as the “Minimum Monthly Quantity”.) In order to accommodate minor fluctuations in volumes actually delivered and accepted under this Revised Agreement, any quantities of Gypsum Filter Cake to be delivered under this Revised Agreement shall he deemed to be satisfied provided that such fluctuations (up or down) do not exceed ten percent (10%), and provided that the average monthly quantity of Gypsum Filter Cake delivered and accepted under this Revised Agreement over any twelve (12) month period after the Commercial Operation Date shall be approximately 50,000 Net Dry Tons, or the aggregate actual Gypsum Filter Cake Net Dry Tons produced by the Roxboro Plant and the Mayo Plant over the same period, whichever is less. [DEP’s] expectation is to supply Gypsum Filter Cake primarily from the Roxboro Plant and Mayo Plant, but retains the right to supply Gypsum Filter Cake from any source.

(Ex. 15 § 3.1 (italics added).)

75. The italicized language was first added to Section 3.1 by the 2012

Agreement, and is the cornerstone of the parties’ dispute as to whether the 2012

Agreement was intended to change the supply obligation as it had been understood

in the earlier agreements. The parties agree that the MMQ was 50,000 Net Dry Tons

of Gypsum Filter Cake, subject to acceptable minor fluctuations, in the 2004

Agreement and the 2008 Agreement. CTG contends that the parties’ amendment to

Section 3.1 in the 2012 Agreement did not change the base supply term of 50,000 Net

Dry Tons of Gypsum Filter Cake, but only modified how acceptable minor

fluctuations would be determined. DEP contends that the revised language changed

the MMQ from a fixed quantity of 50,000 net dry tons to a variable quantity, which

could be as low as DEP’s actual production of Gypsum Filter Cake at its Roxboro

Plant and Mayo Plant. 76. Prior to trial, the Court found, and again now finds, that the language

of Section 3.1 is ambiguous. As more fully explained below, considering the language

in the light of the extrinsic evidence presented, and particularly the historical

negotiations that lead to the inclusion of Section 3.1 in the 2012 Agreement, the Court

finds that the greater weight of the evidence demonstrates that the parties intended

and agreed to carry forward the MMQ of 50,000 Net Dry Tons of Gypsum Filter Cake,

subject to minor acceptable fluctuations, for the entire term of the 2012 Agreement,

and that, by including the italicized language noted above, the parties further agreed

to a modified method by which to determine those fluctuations.

(a) The MMQ and Section 3.1 under the 2004 Agreement

77. In the 2004 Agreement, the parties included Section 1.23 in Definitions-

Article I to define MMQ to “mean 50,000 Net Dry Tons of Gypsum Filter Cake to be

delivered on a monthly basis in accordance with Section 3.1.” (Ex. 5 § 1.23.) Section

3.1 provided when the delivery obligation would be triggered and the minor

fluctuations that would be acceptable each month. (Ex. 5 § 3.1.)

78. Section 3.1 set two defined time periods—(1) the Start-Up Period,

defined as the “initial six (6) month period of commercial operations of the [CTG

Plant],” and (2) the remainder of the 2004 Term after the Start-Up Period (“2004

Term”). (See Ex. 5 §§ 1.33, 3.1.) During the Start-Up Period, the parties were only

required to deliver and accept 30,000 net dry tons of Gypsum Filter Cake. (See Ex. 5

§§ 1.33, 3.1.) After the Start-Up Period, DEP was required to deliver and CTG was

required to accept the MMQ as defined in Section 1.23—50,000 net dry tons. (See Ex. 5 §§ 1.23, 3.1.) Section 3.1 also provided for allowable minor fluctuations, stating that

the parties’ obligations would be satisfied “provided that such fluctuations (up or

down) do not exceed 10%.” (Ex. 5 § 3.1.)

79. Section 3.1 provided in 2004, and has continued in all subsequent

agreements to provide, that “[DEP’s] expectation is to supply Gypsum Filter Cake

primarily from the Roxboro Plant and Mayo Plant, but retains the right to supply

Gypsum Filter Cake from any source.” (Ex. 5 § 3.1.)

(b) Revisions to Section 3.1 in the 2008 Agreement

80. The parties made three significant changes to Section 3.1 in the 2008

Agreement. They agreed to: (1) eliminate the Start-Up Period, (2) add “Commercial

Operation” dates, and (3) delete the definition of MMQ from the definitions article,

leaving the MMQ to be defined only by the language of Section 3.1.

81. When negotiating the 2008 Agreement in light of CTG’s construction

delay, DEP proposed that provisions related to the Start-Up Period in which CTG

was obligated to accept less than the MMQ should be eliminated, and that the MMQ

should be increased from 50,000 net dry tons to 55,000 net dry tons after CTG began

or should have begun Commercial Operation. DEP then proposed two periods with a

different MMQ. Its proposed Section 3.1 read as follows:

Commencing on the earlier of (a) November 1, 2008 or (b) when the Loading Facility is in Commerical Operation and continuing until the earlier of (i) the date the CertainTeed Manufacturing Plant commences Commercial Operation or (ii) November 1, 2011 [(“Commercial Operation Period”)], [DEP] agrees to sell and deliver to CertainTeed and CertainTeed agrees to purchase and accept from [DEP] at least 50,000 Net Dry Tons of Gypsum Filter Cake per month, subject to the allowance for fluctuations as set forth in this paragraph, and except as may otherwise be excused by the terms of this Amended Agreement [(“Commercial Operation Period MMQ”)]. Commencing on the earlier of (x) the date the CertainTeed Manufacturing Plant commences Commerical Operation or (ii) November 1, 2011, and continuing throughout the remainder of the Term of this Agreement [(“2008 Term”)], [DEP] agrees to sell and deliver to CertainTeed and Certainteed agrees to purchase and accept from [DEP] at least 55,000 Net Dry Tons of Gypsum Filter Cake per month subject to the allowance for fluctuations as set forth in this paragraph, and except as may otherwise be excused by the terms of this Amended Agreement [(“2008 Term MMQ”)]. (The volume obligations set forth herein may be referred to as applicable the “Minimum Monthly Quantity.”) In order to accommodate minor fluctuations in volumes actually delivered and accepted under this Amended Agreement, any quantities of Gypsum Filter Cake to be delivered under this Amended Agreement shall be deemed to be satisfied provided that such fluctautions (up or down) do not exceed 10%, and provided that the average monthly quantity of Gypsum Filter Cake delivered and accepted under this Amended Agreement over any twelve (12) month period after the Start-up Period shall be approximately 50,000 Net Dry Tons. [DEP’s] expectation is to supply Gypsum Filter Cake primarily from the Roxboro Plant and Mayo Plant, but retains the right to supply Gypsum Filter Cake from any source.

(Ex. 11 § 3.1 (emphasis added).)

82. DEP’s proposed amendment did not change either the definition of

acceptable minor fluctuations or the language retaining DEP’s ability to supply

synthetic gypsum from any source.

83. The parties met to discuss DEP’s proposed changes on February 14 and

15, 2008. CTG agreed to eliminate the Start-Up Period, but did not agree to increase

the MMQ to 55,000 net dry tons. The net effect was to provide a single definition of

the MMQ as 50,000 net dry tons, subject to the agreed fluctuations.

84. On February 18, 2008, DEP’s attorney circulated a draft intended to

incorporate the agreements reached at the February meeting (“February 2008

Draft”). The February 2008 Draft was not produced in a redline format to show the revisions that were rejected, changed, or agreed to. (See Ex. 18.) Section 3.1 in the

February 2008 Draft read as follows:

Delivery of Gypsum. Commencing on the earlier of (a) November 1, 2008 or (b) when the Loading Facility is in Commercial Operation and continuing until the earlier of (i) the date the CertainTeed Manufacturing Plant commences Commercial Operation or (ii) November 1, 2011, [DEP] agrees to sell and deliver to CertainTeed and CertainTeed agrees to purchase and accept from [DEP] at least 50,000 Net Dry Tons of Gypsum Filter Cake per month, subject to the allowance for fluctuations as set forth in this paragraph, and except as may otherwise be excused by the terms of this Amended Agreement. (The volume obligations set forth herein may be referred to as the “Minimum Monthly Quantity”.) In order to accommodate minor fluctuations in volumes actually delivered and accepted under this Amended Agreement, any quantities of Gypsum Filter Cake to be delivered under this Amended Agreement shall be deemed to be satisfied provided that such fluctuations (up or down) do not exceed 10%, and provided that the average monthly quantity of Gypsum Filter Cake delivered and accepted under this Amended Agreement over any twelve (12) month period after the Start-up Period shall be approximately 50,000 Net Dry Tons. [DEP’s] expectation is to supply Gypsum Filter Cake primarily from the Roxboro Plant and Mayo Plant, but retains the right to supply Gypsum Filter Cake from any source.

(Ex. 18 § 3.1 (emphasis in original).)

85. The February 2008 Draft eliminated the entire sentence in DEP’s earlier

draft that would have defined a period after the Commercial Operation Period in

which the MMQ would be increased to 55,000 net dry tons. As a result, the February

2008 Draft did not expressly include any MMQ for the contract term remaining after

the earlier of November 2011 or the start of the Commercial Operation Period.

86. Neither the negotiators nor counsel recognized that omission.

Ultimately, the parties executed the 2008 Agreement, adopting Section 3.1 as shown

in the February 2008 Draft. (See Ex. 6 § 3.1; see also Ex. 18 § 3.1.) 87. Despite the fact that Section 3.1 of the 2008 Agreement, as adopted, did

not explicitly state a quantity term for the remainder of the 2008 Term, the parties

agree that the MMQ under the 2008 Agreement was 50,000 net dry tons for the entire

term of the 2008 Agreement, subject to the acceptable minor fluctuations. Morrow

and Coppola both testified that their understanding and intent was to move the

definition of MMQ to Section 3.1 and that the MMQ was to be 50,000 net dry tons for

the entire term of the 2008 Agreement, subject to minor fluctuations.

88. The Court finds that a drafting error resulted in there being no express

MMQ for the entire term of the 2008 Agreement, but that notwithstanding that error

and omission, under the 2008 Agreement, the parties intended, understood, and

agreed that the MMQ was 50,000 net dry tons during both the Commercial Operation

Period and the remainder of the 2008 Term, subject to the acceptable minor

fluctuations, which remained unchanged from the 2004 Agreement. This drafting

error did not affect the provision of Section 3.1 regarding DEP’s expected source of

Gypsum Filter Cake to meet its supply obligation, which was carried forward from

the 2004 Agreement without change.

(c) Section 3.1 of the 2012 Agreement

89. Section 3.1 in the 2012 Agreement varies from the 2008 Agreement in

two ways: (1) the definition of the Commercial Operation Period changed; and (2) the

clause “or the aggregate actual Gypsum Filter Cake Net Dry Tons produced by the

Roxboro Plant and the Mayo Plant over the same period, whichever is less” was added. The Court will now refer to this added clause as the “Aggregate Actual

Production Clause.” (Ex. 15 § 3.1.)

90. The Commercial Operation Period was changed to start on May 1, 2009,

when CTG accepted its first delivery of Gypsum Filter Cake, and to end on the earlier

of (a) the actual commercial operation date of the CTG Plant or (b) October 1, 2012

(“2012 Commercial Operation Period”). (Ex. 15 § 3.1.)

91. Language that later became the Aggregate Actual Production Clause

adopted in the 2012 Agreement originated in a draft Engelhardt proposed to begin

negotiations for a new agreement. That clause must be considered in context. His

proposed changes to Section 3.1 were accompanied by substantial other changes that

DEP rejected. The Aggregate Actual Production Clause was the sole portion of

Engelhardt’s proposals to the 2008 Agreement that was incorporated into the final

2012 Agreement. CTG contends that the language in question was retained in order

to change the acceptable minor fluctuations, but that the parties did not intend to

change the fixed MMQ that had been in place since 2004. DEP contends that the

Aggregate Actual Production Clause was retained in Section 3.1 because DEP

accepted CTG’s proposal to replace a fixed MMQ with one that fluctuated based on

production at its Roxboro Plant and Mayo Plant.

92. The Court agrees with CTG and finds that the parties did not intend for

the Aggregate Actual Production Clause to change the supply and acceptance

obligations, but rather the parties understood, intended and agreed that the MMQ

throughout the term of the 2012 Agreement, (“2012 Term”), would continue to be 50,000 net dry tons, and the Aggregate Actual Production Clause was intended,

understood, agreed only to modify the method to determine minor fluctuations

without otherwise modifying the MMQ from which those fluctuations are measured.

93. When negotiating the 2012 Agreement, Engelhardt proposed not only

substantial changes to Section 3.1, but also provisions regarding the Stockpile and

other modifications that would allow either party to receive the essential benefit of

the supply agreement even if the quantities supplied or accepted from month to

month varied to a degree larger than the 10% variances allowed by Section 3.1 of the

2004 Agreement and the 2008 Agreement. Engelhardt testified that he intended to

provide both CTG and DEP flexibility consistent with the actual month-to-month and

seasonal variations in production, but with protections through the Stockpile to

ensure that each party would receive the expected benefit of the agreement.

94. First, Engelhardt proposed a shift from a monthly emphasis to an

annual term, with any default to be measured against that annual quantity. (See Ex.

23 § 1.30; see, e.g., Ex. 23 § 6.2 (stating in a redlined draft the remedies available to

CTG “in the event [DEP] is unable to deliver to CertainTeed the Minimum Annual

Monthly Quantity in any year month during the Term of this Revised Agreement and

the stockpile falls below 100,000 Net Dry Tons . . . .”).) Engelhardt also proposed a

new MMQ of 25,000 net dry tons per month, which would be an absolute minimum

amount the parties could deliver and accept each month, but the primary focus would

be satisfying the annual obligations. 95. Second, Engelhardt proposed that the parties agree to maintain an

absolute minimum and maximum volume for the Stockpile to protect their respective

needs (“Stockpile Buffer”). The minimum would be set at 100,000 net dry tons,

assuring that CTG would always have access to at least two months’ supply, and the

maximum would be set at 600,000 net dry tons, with CTG required to remove any

excess. (See Ex. 23 § 2.2.3(c).)

96. Third, Engelhardt substantially revised Section 3.1 to accommodate

these changes. Engelhardt’s proposed Section 3.1 stated:

Commencing on May 1, 2009 and continuing until the earlier of (i) the date the CertainTeed Manufacturing Plant commences Commercial Operation or (ii) October 1, 2012, [DEP] agrees to sell and deliver to CertainTeed and CertainTeed agrees to purchase and accept from [DEP] at least 600.000 [sic] Net Dry Tons of Gypsum Filter cake per year or the quantity of Gypsum Filter Cake produced by [DEP] during the said year, whichever is less, subject to the Stockpile in the [DEP] Storage Area not exceeding 600,000 Net Dry Tons, and except as may otherwise be excused by the terms of this Revised Agreement. (The volume obligations set forth herein may be referred to as the “Minimum Annual Quantity”.) The Minimum Monthly Quantity of Gypsum Filter Cake that [DEP] agrees to sell and deliver to CertainTeed and that CertainTeed agrees to purchase and accept from [DEP] in any given month shall be 25,000 Net Dry Tons. In order to accommodate minor fluctuations in volumes actually delivered and accepted under this Revised Agreement, any quantities of Gypsum Filter Cake to be delivered under this Revised Agreement shall be deemed to be satisfied provided that the average monthly quantity of Gypsum Filler [sic] Cake delivered and accepted under this Revised Agreement over any (12) month period after the beginning of the Commercial Operation shall be approximately 50,000 net dry tons, or the actual Gypsum Filter Cake Net Dry Ton production over the same period, whichever is less. [DEP’s] expectation is to supply Gypsum Filter Cake primarily from the Roxboro Plant and Mayo Plant, but retains the right to supply Gypsum Filter Cake from any source. Acceptance will include Gypsum Filter Cake conveyed to the CertainTeed plant, loaded into rail or trucks for transfer to other CertainTeed facilities, transferred to third parties, or added to the Stockpile providing that the Stockpile does not exceed 600,000 tons. (Ex. 23 § 3.1 (italics added).)

97. Engelhardt deleted the language in Section 3.1 of the 2008 Agreement

that allowed fluctuations in the monthly quantity so long as “such fluctuations (up or

down) do not exceed ten percent” and substituted the Actual Aggregate Production

Clause. (See Ex. 23 § 3.1.) He then substituted his proposal that would allow

fluctuations to be measured by production but still subject to the requirements of this

Stockpile Buffer.

98. Under Engelhardt’s proposal, CTG would be obligated to accept DEP’s

actual annual production of Gypsum Filter Cake or 600,000 net dry tons, whichever

was less, and whatever amount of Gypsum Filter Cake was necessary to guarantee

that the Stockpile did not exceed 600,000 net dry tons. In turn, DEP would be

required to maintain at least 100,000 net dry tons of Gypsum Filter Cake in the

Stockpile at all times, irrespective of what DEP actually produced at its Roxboro

Plant and Mayo Plant.

99. Notably, Engelhardt’s draft started from the language of Section 3.1 of

the 2008 Agreement, which, as noted above, failed to include an express MMQ for the

contract term remaining after the early Commercial Operation Period. He then

carried forward the same mistaken omission that had occurred in 2008. It is clear,

however, that Engelhardt intended to propose an annual supply obligation for the

entire 2012 Term.

100. Engelhardt sent his proposed draft to Coppola on October 20, 2011. (See

Ex. 23.) After receiving Engelhardt’s draft, Coppola expressed that DEP “would like to leave the volume obligation as is,” but agreed that the parties could discuss possible

changes. (Ex. 25.) At that time, Coppola was aware that DEP was projecting that

for the next several years, its Roxboro Plant and Mayo Plant would produce Gypsum

Filter Cake in excess of 600,000 tons per year.

101. Neither Engelhardt nor Coppola recall having extensive conversations

between October 2011 and February 2012. E-mails suggest some discussion occurred

in November 2011, but no such discussion is further documented. (See Ex. 25.)

Coppola testified that she and Engelhardt discussed Engelhardt’s proposed changes

in detail, but she was unable to recall any specifics regarding such discussions.

Engelhardt testified that he and Coppola, in fact, had very few conversations between

October 2011 and finalizing the 2012 Agreement.

102. Coppola first provided Engelhardt a counterproposal on February 10,

2012 (“February 2012 Draft”). (See Ex. 26.) The February 2012 Draft rejected most

of Engelhardt’s proposed edits.

103. Specifically, DEP deleted “Minimum Annual Quantity” as a defined

term and all references to a “Minimum Annual Quantity” included throughout the

agreement. (See, e.g., Ex. 26 §§ 1.30, 2.2.3(c), 3.1, 6.2.) DEP reverted back to the

language of the 2008 Agreement. DEP rejected Engelhardt’s revised monthly

minimum of 25,000 net dry tons. DEP reinserted the clause allowing 10%

fluctuations (up or down), but also left in the Aggregate Actual Production Clause,

which Engelhardt had proposed in lieu of the 10% fluctuation. DEP’s February 2012 Draft, like the 2008 Agreement, did not state a fixed quantity term for the contract

period remaining after the 2012 Commercial Operation Period.

104. DEP rejected Engelhardt’s proposal to create a Stockpile Buffer with a

guaranteed minimum and maximum volume. (Ex. 26 §§ 1.48, 2.2.3(c).) Rather,

DEP’s February 2012 Draft contained no quantity requirements for the Stockpile.

(See Ex. 26 § 2.2.3.)

105. Lead negotiators for the parties met on February 14, 2012, in an effort

to reach a final agreement. There was no testimony as to any specific discussion of

Section 3.1 at the parties’ February meeting.

106. Ultimately, Section 3.1 in the 2012 Agreement was adopted as it had

been proposed in DEP’s February 2012 Draft.

107. Even though she could not recall any specific negotiations, Coppola now

testifies that she specifically recalls that the parties intended and agreed to create a

new variable quantity term for the contract period after the 2012 Commercial

Operation Period. Coppola testified that to accomplish this purpose, DEP

intentionally accepted the Aggregate Actual Production Clause in order to accept

CTG’s proposal to move from a fixed to a variable MMQ. She testified that the parties

agreed that the variable MMQ after the 2012 Commercial Operation Period would

be:

the average monthly quantity of Gypsum Filter Cake delivered and accepted under this Revised Agreement over any twelve (12) month period after the Commercial Operation Date shall be approximately 50,000 Net Dry Tons, or the aggregate actual Gypsum Filter Cake Net Dry Tons produced by the Roxboro Plant and the Mayo Plant over the same period, whichever is less. (Ex. 15 § 3.1.) Coppola is the sole witness who recalls DEP’s intent to change the

MMQ to a variable term that could fall below 50,000 net dry tons if DEP’s production

fell. Even Coppola was unable to testify as to any discussion with CTG in this regard.

108. Engelhardt testified that he believed that when DEP rejected his other

proposed changes, Section 3.1 essentially reverted back to the volume obligations as

stated in the 2008 Agreement, but that the parties slightly modified the method for

determining the allowable minor fluctuations. He understood that the parties agreed

that a party would be deemed to satisfy its obligations under Section 3.1 if the two

minor fluctuation requirements were each satisfied: first, any fluctuations from the

50,000 MMQ could not exceed 10% (up or down), and second, the average monthly

quantity over a twelve-month period must equal the lesser of 50,000 net dry tons

(essentially 600,000 net dry tons per year), or DEP’s aggregate actual production at

the Roxboro Plant and Mayo Plant. Engelhardt testified that because both conditions

had to be satisfied, the net effect was that the parties would satisfy their volume

obligation so long as DEP delivered and CTG accepted at least 540,000 net dry tons

of Gypsum Filter Cake per year, or a maximum of a 10% variation each month.

109. Engelhardt testified that he agreed to the inclusion of the Aggregate

Actual Production Clause based on his understanding that the MMQ would be

between 45,000 and 55,000 net dry tons per month. Engelhardt explained that by

leaving in the Aggregate Actual Production Clause, the parties were allowing for

some fluctuation to the volume obligations—although not the fluctuation he had requested—and that a guarantee of at least 45,000 net dry tons per month was

sufficient to satisfy CTG’s needs.

110. The Court finds that Engelhardt’s proposed changes must be understood

and read in conjunction with all of his revisions, including the addition of a Minimum

Annual Quantity term, the inclusion of a Stockpile Buffer, and the deletion of the

10% fluctuations clause.

111. The Court finds that the Aggregate Actual Production Clause

Engelhardt proposed was not, initially or when adopted, intended by either party to

change the MMQ from the fixed volume of 50,000 net dry tons per month, subject to

minor fluctuations, to a new variable MMQ based on DEP’s actual production at its

Roxboro Plant and Mayo Plant. Rather, as Engelhardt proposed an alternative

monthly quantity, he also proposed an alternative method to determine acceptable

fluctuations to substitute for the existing method based on a 10% variation of the

fixed 50,000 net dry ton supply obligation. Engelhardt intended to allow for greater

monthly variations while maintaining an annual quantity obligation and requiring a

Stockpile Buffer. The Court finds that Engelhardt’s various proposed modifications

of the parties’ supply and acceptance obligations were subject to the parties also

agreeing to Engelhardt’s proposed Stockpile Buffer, and once DEP determined to

remain with a fixed MMQ of 50,000 net dry tons, neither CTG nor DEP intended or

agreed to accept Engelhardt’s proposed language as anything other than a

modification to the manner in which fluctuations from that MMQ would be

acceptable. 112. Following Engelhardt’s promotion to CTG President, on February 22,

2012, Kim Bildfell (“Bildfell”), CTG’s Vice President of Purchasing and Customer

Satisfaction, assumed responsibility for negotiating the 2012 Agreement on behalf of

CTG. Bildfell testified that the negotiations concerning Section 3.1 had been

completed before she began participating in the negotiations and that she was not

involved in any further negotiations concerning Section 3.1. Instead, she focused on

addressing the Stockpile requirements in Section 2.2.3 and finalizing the operational

changes.

113. On March 7, 2012, while reviewing a draft of the 2012 Agreement,

Bildfell noted a question as to whether the changes to Section 3.1 would allow DEP

to reduce its supply of Gypsum Filter Cake below 50,000 net dry tons even if CTG

were to require that amount. (See Ex. 46 ¶ 8 (“What if [DEP] makes less than 50,000

consistently and we need 50,000 . . . [Section 3.1] reads 50,000 net dry tons, or the

aggregate actual Gypsum Filter Cake Net Dry Tons produced by the Roxboro Plant

and the Mayo Plant. Does this mean [DEP] no [sic] responsible if [sic] produce less

than 50,000 consistently[?]”).) Bildfell believes that she discussed this concern with

Engelhardt, but she does not recall any specifics of a discussion with Engelhardt or

anyone else regarding her question about Section 3.1. She testified that at the time

she signed the 2012 Agreement, she understood that the MMQ was 50,000 net dry

tons per month for the entire 2012 Term.

114. The Court finds that Bildfell’s comments do not evidence that the parties

intended and agreed that Section 3.1 of the 2012 Agreement changed the MMQ from what it has been understood to mean since it was first established in the 2004

115. Other contemporaneous documentation is consistent with the Court’s

finding.

116. On August 17, 2012, Coppola emailed her supervisors a summary of the

major changes to the 2012 Agreement. Notably, Coppola made no direct or indirect

reference to the parties’ alleged agreement to change the MMQ to a variable supply

term. To the contrary, Coppola stated that there were “[n]o changes to the original

intent of the document,” explaining that the “primary changes” made in the 2012

Agreement reflected the parties’ agreement that CTG could install additional

equipment to the DEP Storage Area. (Ex. 28.) Coppola repeatedly stated that the

volume obligations did not change, concluding that “[n]o changes to Article 3 –

Gypsum Sales – this is important because there has been no change to the obligation

to deliver material in the original volumes specified” and “[a]gain, the original terms

around pricing and volumes remained untouched.” (Ex. 28, at 2 (emphases added).)

117. Coppola now testifies that her August 17, 2012 e-mail was inaccurate.

Attempting to explain the error, Coppola stated that, at the time she drafted the e-

mail, she was focused on the changes the parties had made concerning the

construction modifications. She further testified that at the time she drafted the e-

mail, DEP forecast that the actual production of Gypsum Filter Cake at the Roxboro

Plant and Mayo Plant would be at least 600,000 net dry tons per year, meaning the volume obligation would effectively remain the same and there would have been no

need to document a supply obligation based on different production scenarios.

118. Contrary to her testimony at trial, the Court finds that throughout the

negotiations for the 2012 Agreement, Coppola and DEP remained committed to

keeping the quantity term as it was. (See Ex. 25 (stating that DEP “would like to

leave the volume obligation as is”).) Consistent with its intent to keep the supply

obligation the same, DEP rejected the substance of Engelhardt’s proposed changes.

119. The Court does not find Coppola’s current recollection or testimony at

trial, which varies from her contemporaneous documentation, to be credible. A

change from a fixed quantity to a variable quantity term would have been a

fundamental change to the parties’ agreement. If there was a clear and intentional

effort to accept portions of Engelhardt’s proposed language to make this shift, it is

fair to expect that Coppola would have advised her management of such change.

Instead, she advised management that there was no change. Further, considering

that this new variable term would require DEP to complete month-to-month

calculations to determine its rolling twelve-month average production in order for the

parties to determine the MMQ each month, it is fair to expect that Coppola would

have advised those who were to oversee the performance of the contract that they

needed to make the necessary monthly calculations. It is clear she did not. There is

no testimony or document reflecting that Coppola told anyone at or around the time

the 2012 Agreement was executed that the MMQ had changed. The Court finds that

it is not credible that Coppola now recalls a specific intent, contrary to her written documentation, that the parties intended or agreed to change the 50,000 net dry ton

MMQ as understood in the 2008 Agreement. Rather, her documentation supports

the finding that the parties intended that the MMQ was not changed, and only the

method of determining acceptable fluctuations had been changed by the 2012

120. The Court finds that the greater weight of the evidence proves that

neither CTG nor DEP intended to change the MMQ to the variable quantity term

DEP now promotes in the litigation. Rather, the greater weight of the evidence leads

the Court to find that both CTG and DEP intended and agreed to carry forward the

MMQ of 50,000 net dry tons of Gypsum Filter Cake, as stated in the 2004 Agreement

and the 2008 Agreement. As was the case when entering the 2008 Agreement, the

parties intended this MMQ to apply for the entire term of the 2012 Agreement,

although the language failed to expressly define a supply quantity for the entire

contract term.

121. Based on the greater weight of the evidence, the Court further finds that

the parties intended and agreed that Section 3.1, as modified in the 2012 Agreement,

provides two separate clauses for determining acceptable fluctuations connected with

the word “and,” so that both clauses must be met in order for a fluctuation from the

MMQ to be acceptable. Accordingly, the parties intended and agreed that their

supply or acceptance obligations would be satisfied if DEP supplied and CTG accepted

(1) an average monthly quantity of 50,000 net dry tons (essentially 600,000 net dry

tons per year) or the aggregate actual production from the Roxboro Plant and Mayo Plant over a twelve-month period, “whichever is less,” and (2) the monthly quantity

delivered and accepted does not vary more than 10% (up or down) from 50,000 net

dry tons. Read together, these phrases provide that throughout the term of the 2012

Agreement, unless otherwise excused, DEP must supply and CTG must accept

between 45,000 and 55,000 net dry tons per month and 540,000 and 600,000 net dry

tons of Gypsum Filter Cake over a twelve-month period.

(d) The Parties’ Performance between 2012–2016

122. The Court has not relied upon evidence of the parties’ performance after

executing the 2012 Agreement to determine the intent of the parties when entering

that agreement. However, having heard the evidence presented, the Court finds that

the parties’ performance under the 2012 Agreement is consistent with the Court’s

finding that, when entering the 2012 Agreement, the parties intended and agreed for

the MMQ to be 50,000 net dry tons for the entire 2012 Term as it had been for earlier

agreements.

123. The CTG Plant became operational on March 28, 2012, initially running

only one shift for the first month. The CTG Plant gradually increased its

production—operating two shifts between May 2012 and October 2012, then

increasing to three shifts in October 2012. Ultimately, the CTG Plant began

operating four shifts and running at full capacity in April 2013.

124. CTG increased its acceptance of Gypsum Filter Cake from 2012 through

2014, but was still not regularly accepting 50,000 net dry tons per month. (Factual

Stipulations, Ex. 1.) From March 2012 through July 2015, over two years after the CTG Plant became fully operational, CTG had only accepted as much as 45,000 net

dry tons of Gypsum Filter Cake during three months. (Factual Stipulations, Ex. 1.)

125. John Halm (“Halm”), a byproducts marketing manager for DEP, became

responsible for managing and administrating the 2012 Agreement on behalf of DEP

around October 2012. At that time, Halm administered the 2012 Agreement based

on his understanding that DEP had an obligation to supply, and CTG had an

obligation to accept, 50,000 net dry tons of Gypsum Filter Cake per month, subject to

allowable fluctuations. Although Coppola’s construction of the 2012 Agreement

would require calculating DEP’s rolling twelve-month average production at its

Roxboro Plant and Mayo Plant each month, Coppola did not instruct Halm of this

need.

126. Halm reported to Tony Mathis (“Mathis”), the manager of DEP’s

byproducts team. Beginning in 2015, Mathis reported to Brian Weisker (“Weisker”),

Vice President of Coal Combustion Products Operations & Maintenance. Documents

reflect that at least until they consulted with counsel in January 2017, Halm, Mathis,

and Weisker, who were not involved in any negotiation leading to the 2012

Agreement, all understood, based on their reading of the agreement, that the MMQ

under the 2012 Agreement was 50,000 net dry tons per month. (See Exs. 31, 32, 113,

114.) Both Halm’s and Weisker’s testimony at trial was consistent with the

documentation.

127. Although the evidence is that CTG did not regularly accept 50,000 net

dry tons (plus or minus 10%) between March 2012 and July 2015, there is no evidence that DEP demanded that CTG do so. Nevertheless, DEP continued to represent that

the MMQ was 50,000 net dry tons per month, informing CTG that DEP did not want

CTG to discontinue its support for third-party sales until the Stockpile fell below

600,000 net dry tons and CTG was regularly accepting 50,000 tons per month. (See

Ex. 130.)

128. In January 2016, Halm prepared a written summary of the 2012

Agreement reflecting his understanding that DEP was contractually obligated to

supply 600,000 tons of synthetic gypsum per year and that DEP would be required to

purchase synthetic gypsum from another source if the production at DEP’s Roxboro

Plant and Mayo Plant was not adequate to satisfy the MMQ. (See Ex. 31, at 3.) Halm

noted that while CTG has actually required lesser amounts, he projected that DEP

faced a future production shortage that would not meet the MMQ.

129. In January 2017, Weisker prepared a summary of the CTG contract and

provided it to his superior, George Hamrick, Vice President of Coal Combustion

Products. Weisker’s summary acknowledged that DEP had a supply obligation of

600,000 tons per year that would require DEP to secure an alternative source of

synthetic gypsum should its Roxboro Plant and Mayo Plant production be inadequate.

(Ex. 113, at 1.)

130. Halm and Weisker testified that they changed their understanding

regarding the MMQ after consulting counsel.

131. Between 2012 and early 2017, DEP never tracked or calculated the

rolling twelve-month average of production at the Roxboro Plant and Mayo Plant. April 6, 2017, was the first time Halm calculated the twelve-month rolling average to

determine the MMQ.

132. The Court finds that the understanding that Halm and Weisker had

before consulting counsel, and the management steps they took consistent with that

understanding, were fully consistent with the Court’s determination of the parties’

understanding, agreement, and intent with regard to the MMQ at the time they

executed the 2012 Agreement.

(e) Source of Supply of Gypsum Filter Cake to Satisfy Section 3.1

133. DEP contends that the MMQ must be read narrowly so as to limit its

obligation to supply Gypsum Filter Cake to only supplying its production at the

Roxboro Plant and Mayo Plant, whether or not that amount is less than the MMQ as

the Court has found it to be defined by the 2012 Agreement.

134. The 2004 Agreement defined Gypsum Filter Cake as “a filter cake of

calcium sulfate dehydrate, being a byproduct of the FGD Systems, which conforms to

the Specifications.” (Ex. 5 § 1.17.) FGD Systems were designated as “the Flue Gas

Desulfurization system(s) to be installed, owned (in whole or in part) and operated by

[DEP] at the Mayo and Roxboro Plants.” (Ex. 5 § 1.14.)

135. DEP contends that these definitions, read together and considered in

the context of the overall structure of the 2004 Agreement, demonstrate that the

parties agreed that DEP was only obligated to supply synthetic gypsum produced

from the FGD Systems at the Roxboro Plant and Mayo Plant. 136. The Court finds that such a narrow reading is inconsistent with other

provisions adopted in the 2004 Agreement and carried forward in the 2008

Agreement and the 2012 Agreement. The parties repeatedly use the defined term

“Gypsum Filter Cake” in a manner that makes clear that the reference must be to

synthetic gypsum produced at locations other than the Roxboro Plant and Mayo

Plant. (Ex. 15 §§ 3.8, 6.2.) The parties have consistently and repeatedly agreed that

“[DEP’s] expectation is to supply Gypsum Filter Cake primarily from the Roxboro

and Mayo Plants, but retains the right to supply Gypsum Filter Cake from any

source.”) (Ex. 5 § 3.1; see Ex. 6 § 3.1; Ex. 15 § 3.1) (emphases added).) It is manifestly

obvious that DEP could not obtain Gypsum Filter Cake from any source other than

its Roxboro Plant and Mayo Plant if by definition any Gypsum Filter Cake must have

been produced only at the Roxboro Plant or Mayo Plant.

137. The Court finds that the parties understood, intended, and agreed when

entering into each of the Supply Agreements, that although DEP expected to supply

synthetic gypsum primarily from its Roxboro Plant and Mayo Plant, it might be

required to supply from other sources if necessary. DEP’s pre-litigation course of

action is fully consistent with their having so agreed.

(2) Section 2.2.3 Regarding the Stockpile

138. The Supply Agreements have consistently agreed that DEP would build

and thereafter maintain a storage area on its property to store Gypsum Filter Cake

at its Roxboro Plant. (See Ex. 5 § 2.2; Ex. 6 § 2.2.3(a); Ex. 15 § 2.2.3(a).) Before the

CTG Plant was operational, DEP stored much of its production in the Stockpile, but required CTG to remove amounts necessary to keep the Stockpile within a safe

volume. The Supply Agreements contemplated that on an ongoing basis, so long as

the Stockpile was within an acceptable volume, DEP may add Excess Gypsum to the

Stockpile. (Ex. 5 § 1.12; Ex. 6 § 1.15; Ex. 15 § 1.21; see Ex. 5 § 2.2; Ex. 6 § 2.2.3(a);

Ex. 15 § 2.2.3(a).)

139. The 2012 Agreement contains the following Section 2.2.3(a):

[DEP] and CertainTeed have worked together to build a Gypsum Filter Cake stockpile (the “Stockpile”) in the [DEP] Gypsum Storage Area. [DEP] will use commercially reasonable efforts to maintain at least 250,000 Net Dry Tons of Gypsum Filter Cake in the Stockpile at all times during the Term of this Revised Agreement. If the volume in the Stockpile falls below 250,000 Net Dry Tons, [DEP] will be deemed to be using commercially reasonable efforts to maintain the required volume in the Stockpile as set forth herein to the extent that [DEP’s] monthly production of Gypsum Filter Cake is used to fulfill its Minimum Monthly Requirement obligations as set forth herein, and (a) the Excess Gypsum is being utilized to replenish the Stockpile, or (b) to the extent otherwise agreed by the Operating Plan as provided below. If at any time during the Term of this Revised Agreement the Stockpile falls below 250,000 Net Dry Tons or [DEP] has reason to believe that the Stockpile will fall below 250,000 Net Dry Tons for any reason . . . then (unless otherwise previously provided to CertainTeed) [DEP] will provide a replenishment plan (the “Replenishment Plan”) to CertainTeed to establish a plan to rebuild the volume in the Stockpile to 250,000 Net Dry Tons.

(Ex. 15 § 2.2.3(a) (italics added).)

140. There is no evidence that the parties ever prepared the Operating Plan

referred to in this section.

141. Section 2.2.3(b) details that CTG has responsibility for maintaining the

conveyor that is used to transport materials from the Stockpile for delivery to the CTG Plant and that CTG cannot allow the Stockpile to exceed 600,000 net dry tons

of Gypsum Filter Cake, referred to as “the Storage Maximum.” (Ex. 15 § 2.2.3(b).)

Section 2.2.3(b) concludes with the following:

For the avoidance of doubt, [DEP] will be deemed to have met its obligation hereunder to deliver its [MMQ] to the extent that [DEP] has delivered at least an aggregate total quantity of Gypsum Filter Cake at least equal to the [MMQ] (i) directly to the [CTG Plant] via the Gypsum Conveyor System, (ii) and/or to the [DEP] Gypsum Storage Area, and/or (iii) directly to the [CTG Plant] by truck if mutually agreed upon.

(Ex. 15 § 2.2.3(b).)

142. CTG contends that: (a) DEP is required to utilize commercially

reasonable efforts to maintain the Stockpile at 250,000 Net Dry Tons of Gypsum

Filter Cake; (b) DEP has failed to do so because it failed deliver the contractually

required MMQ; (c) now that the Stockpile volume has fallen below 250,000 net dry

tons, DEP is contractually obligated to produce a Replenishment Plan; and (d) the

Replenishment Plan DEP has provided to date does not meet DEP’s contractual

obligation because it is not based on DEP’s obligation to supply the MMQ throughout

the term of the 2012 Agreement and seeks to impose on CTG the cost of now securing

the volume necessary to replenish the Stockpile because of DEP’s failures to supply

the MMQ. (See Am. Compl. ¶¶ 102–03.)

143. DEP’s contention revolves around its proposed definition of the MMQ.

DEP contends that it has complied with its obligations under Section 2.2.3 because:

(a) it has at all material times either delivered its entire production to CTG or added

it to the Stockpile, and (b) it provided CTG with a Replenishment Plan, which DEP

has followed. (See Ex. 54.) 144. The Court finds Section 2.2.3 of the 2012 Agreement to be ambiguous,

requiring the Court to consider extrinsic evidence to determine the intent of the

parties when entering the 2012 Agreement. The extrinsic evidence includes the

drafting history of provisions regarding the Stockpile. The initial 2004 Agreement

included a provision that DEP would “build and use reasonable efforts to maintain a

300,000 Net Dry Ton Gypsum Filter Cake [S]tockpile in the [DEP] Storage Area” and

thereafter either dispose of Excess Gypsum or add it to the Stockpile. (Ex. 5 § 2.2.)

145. The 2008 Agreement reduced the minimum volume of the Stockpile to

250,000 Net Dry Tons of Gypsum Filter Cake, modified DEP’s obligations from

“reasonable efforts” to “commercially reasonable efforts,” and added the requirement

that DEP provide a Replenishment Plan if the Stockpile volume fell below 250,000

Net Dry Tons. (Ex. 6 § 2.2.3(a).) The parties also agreed in the 2008 Agreement that

DEP, primarily at CTG’s expense, would increase the Stockpile’s storage capacity to

650,000 Net Dry Tons. (See Ex. 6 § 2.2.3(b).)

146. Section 2.2.3(a) of the 2012 Agreement closely tracked the section as it

had been worded in the 2008 Agreement. DEP rejected Engelhardt’s proposal that

would have modified Section 2.2.3 to provide a Stockpile Buffer, which would

guarantee that the Stockpile volume not be outside defined minimum and maximum

volumes. (See Ex. 26 § 2.2.39(c).)

147. The parties presented little testimony regarding the specifics of the

negotiations of the Stockpile provisions other than their testimony regarding

Engelhardt’s rejected proposal for the Stockpile Buffer. 148. The Court finds that, at the time they entered into the 2012 Agreement,

the parties understood, intended, and agreed that: (a) DEP was required to exercise

commercially reasonable efforts to maintain the Stockpile at a volume of at least

250,000 net dry tons of Gypsum Filter Cake; (b) DEP would be deemed to be using

commercially reasonable efforts so long as it delivered the MMQ, unless otherwise

excused, in the amount defined by Section 3.1 as the Court has found it to be and

delivered in the manner defined by Section 2.2.3(b) of the 2012 Agreement; and (c) if

DEP expected that the volume in the Stockpile would fall or had fallen below 250,000

net dry tons, it was required to prepare and provide to CTG a Replenishment Plan to

rebuild the Stockpile.

149. It is undisputed that, at the time of trial, the Stockpile contained less

than 250,000 tons of Gypsum Filter Cake. It is also undisputed that at all times since

April 2017, when CTG and DEP’s disagreement regarding the definition of the MMQ

became apparent, DEP has used its entire production of synthetic gypsum at the

Roxboro Plant and Mayo Plant either to deliver Gypsum Filter Cake to CTG or to add

to the Stockpile.

150. On March 9, 2017, Weisker, on behalf of DEP, sent a letter to CTG

informing it that the Stockpile would fall below 250,000 tons and that DEP was

developing a Replenishment Plan. (Ex. 138.) DEP then prepared, and on July 25,

2017, supplied to CTG, a Replenishment Plan based on DEP’s interpretation of the

MMQ that it has promoted in this litigation, and which the Court has rejected. (See

Ex. 54.) 151. While DEP has delivered Gypsum Filter Cake as its Replenishment

Plan calls for, DEP has not, during the period after that Replenishment Plan was

provided to CTG, consistently delivered the MMQ as the Court has found it to be.

The evidence is clear that at least for certain months in 2017, after CTG timely

demanded performance, DEP failed to deliver the MMQ as the Court has defined it

to be for the 2012 Agreement. Accordingly, at least for those months, DEP has failed

to use commercially reasonable efforts as defined by Section 2.2.3(a).

152. DEP has breached the 2012 Agreement by failing to prepare a

Replenishment Plan consistent with this Opinion & Final Judgment and based on

the MMQ as the Court has found it to be.

(3) DEP’s Defense Based on Section 3.9 and the Doctrine of Impossibility

153. DEP contends that any performance obligation it may have undertaken

in the 2012 Agreement is now excused by Section 3.9 of the 2012 Agreement, no

matter what the Court determines the MMQ to be, because its further supply of

Gypsum Filter Cake based on the 2012 Agreement terms and requirements is

inconsistent with its Primary Purpose as a regulated utility. DEP relies on Section

3.9 of the 2012 Agreement, which reads:

Primary [DEP] Duty. CertainTeed acknowledges and agrees that [DEP’s] obligations hereunder are subject to [DEP’s] overriding and primary duty to produce economical and reliable electric power for public consumption in accordance with federal, state[,] and local laws and regulations (the “Primary Purpose”) and nothing in this Revised Agreement shall, in any way, be interpreted or constructed so as to obligate [DEP] to attempt to maximize its production of synthetic gypsum, including without limitation, Gypsum Filter Cake and/or to operate any one or more of it Units and/or the FGD Systems and/or to change any of its processes in order to produce such synthetic gypsum or Gypsum Filter Cake at all or of a particular quality and/or form.

(Ex. 15 § 3.9; see also Ex. 6 § 3.9 (emphasis in original).)

154. CTG contends that all of the language of Section 3.9 must be read

together and, when so read, Section 3.9 makes clear that DEP has no obligation to

produce synthetic gypsum at the Roxboro Plant, Mayo Plant, or otherwise, but it does

not excuse DEP from supplying Gypsum Filter Cake from whatever source is

necessary to meet DEP’s contractual obligation.

155. DEP contends that the language in Section 3.9 reflects two related but

separate principles: first, that all of DEP’s obligations under the 2012 Agreement are

subservient to DEP’s Primary Purpose, as expressed in the first clause in Section 3.9;

and second, that the 2012 Agreement cannot be construed to compel DEP to

“maximize its production of synthetic gypsum” to meet its supply obligation, as

expressed in the second clause of Section 3.9. (See Ex. 15 § 3.9; see also Ex. 6 § 3.9.)

DEP contends that the first clause expressing DEP’s Primary Purpose has

independent broad application adequate to excuse its further supply obligation.

156. As to Section 3.9, the Court has been able to determine the intent of the

parties when they entered the 2012 Agreement based on that section’s plain

language. Section 3.9 clearly affirmatively represents, and reflects that CTG

acknowledges, that DEP is a regulated utility company that must supply economical

and reliable electricity consistent with law and regulations. (See Ex. 15 § 3.9.)

Section 3.9 also clearly precludes CTG from demanding that DEP itself produce or

maximize production of synthetic gypsum or Gypsum Filter Cake in any amount. It does not follow that DEP is excused from its contractual supply obligation if

complying with that obligation does not conflict with laws or regulations. If laws or

regulations prohibit DEP from supplying Gypsum Filter Cake, an excuse afforded by

Section 3.9 does not depend on whether DEP is producing Gypsum Filter Cake in any

amount or at all. If no laws or regulations prohibit supplying Gypsum Filter Cake,

DEP’s supply obligation is not excused by Section 3.9, regardless of the amount of

Gypsum Filter Cake DEP may be producing, if any.

157. There was no law or regulation restricting DEP’s supply of Gypsum

Filter Cake when the parties entered the 2012 Agreement. The Court finds, based

on the plain language of Section 3.9, that the parties intended and agreed that Section

3.9 would excuse DEP from its obligation to supply synthetic gypsum if future

changes in laws or regulations restrict DEP from supplying synthetic gypsum, but

did not intend or agree that DEP would be excused if it could continue to lawfully

supply its obligation, even if the expense of doing so increased to an unanticipated

degree. DEP undertook an obligation to supply Gypsum Filter Cake, secured a

contractual protection that its supply can come from alternate sources, and has

offered no proof of any law or regulation that prohibits its supplying Gypsum Filter

Cake. Experts for both parties agree there is no such law or regulation.

158. The Court must also read Section 3.9 in harmony with other provisions

of the 2012 Agreement. Each of the Supply Agreements have included a force

majeure article (“Force Majeure Article”) that expressly provides that certain specific

events will excuse either DEP’s or CTG’s performance obligations. Section 3.9 contains no similar express language. The Court finds no implied excuse arising from

CTG’s recognition that DEP’s obligations are “subject to [DEP’s] overriding and

primary duty to produce economical and reliable electric power for public

consumption in accordance with federal, state[,] and local laws.” (Ex. 15 § 3.9.) The

Court finds that Section 3.9 was not intended to provide that DEP could escape its

supply obligations because changed circumstances may affect the economies of that

supply. The Court concludes that the parties intended and agreed that any such

changed circumstances, other than changes in law or regulation, would be addressed

through the 2012 Agreement’s remedy provisions in Article 6.

159. In sum, the Court reads the plain language of Section 3.9 to excuse DEP

from its obligation to supply Gypsum Filter Cake only if it could no longer legally

supply Gypsum Filter Cake. Section 3.9 does not support DEP’s contention that it is

no longer obligated to perform its supply obligation under the 2012 Agreement.

160. The Court has been able to determine the intent and meaning of Section

3.9 without resort to extrinsic evidence. However, the Court finds from the extrinsic

evidence that it is fully consistent with the meaning the Court has determined from

the plain contractual language.

(a) Negotiating and Drafting Section 3.9

161. Section 3.9 appeared for the first time during the drafting of the 2008

Agreement. Coppola, Mottola, and Morrow testified about the negotiations of the

2008 Agreement. Mottola and Coppola both testified that DEP considered Section 3.9 to be very important and non-negotiable. Morrow acknowledged that Section 3.9

was a new term, but he did not think it impacted the parties’ performance obligations.

162. Coppola sent DEP’s initial draft of the 2008 Agreement, which included

Section 3.9, to CTG on November 22, 2007. (See Ex. 10.) Morrow sent a redlined

draft back to Coppola on January 21, 2008, which included a comment immediately

following Section 3.9 that stated—“This section is new. While the principle is

probably acceptable, we will need to be careful that it does not upset [DEP’s]

minimum delivery obligations under the Agreement.” (Ex. 10 § 3.9.) The evidence

does not make clear who authored this comment, however, identifying the author is

not critical to resolving the dispute between the parties because the Court’s

consideration of the comment is not a significant factor in its determination.

163. On February 14 and 15, 2008, the parties had a meeting to finalize the

2008 Agreement. After that meeting, Pam Larger, DEP’s attorney, sent a working

draft of the 2008 Agreement to CTG titled “Joint Discussion Draft.” (Ex. 18.) DEP

deleted the comment to Section 3.9 discussed above, but did not otherwise change the

language of Section 3.9 from the earlier drafts. (See Ex. 18 § 3.9.) Neither Coppola

nor Morrow recalled the specifics of any discussions about Section 3.9 during their

February 2008 meeting.

164. Coppola testified that DEP intended Section 3.9 to provide it with broad

protection, but she did not recall any specific discussions regarding Section 3.9. The

Court finds Coppola’s testimony to be significantly influenced by DEP’s litigation

position and is not persuaded that Coppola has any specific recollection of any understanding between DEP and CTG as to the purpose and meaning of Section 3.9

other than what can be determined from its language alone.

165. Mottola testified to a more specific recollection of the contractual

negotiations that led to the 2008 Agreement. The Court finds Mottola’s overall

testimony consistent with the Court’s finding based on its plain reading of Section

3.9. Mottola explained that when negotiating the agreement, DEP could not predict

what, if any, new laws or regulations might be enacted during the twenty-year

contract term, thus it wanted protection from liability in the event that an

unanticipated law or regulation prevented DEP from being able to supply Gypsum

Filter Cake. Mottola acknowledged that DEP did not intend for Section 3.9 to excuse

it from its performance obligations if a business decision or something unrelated to

its compliance with a legal requirement impacted DEP’s ability to supply Gypsum

Filter Cake.

166. Mottola now offers his belief that DEP’s compliance with the Least-Cost-

Dispatch Requirement has resulted in DEP producing less synthetic gypsum at the

Roxboro Plant and Mayo Plant, and that Section 3.9 excuses DEP’s supply obligation.

There is no evidence that, at the time the 2008 Agreement was entered, he or others

contemplated or believed that such a scenario would excuse DEP’s obligations to

supply Gypsum Filter Cake.

167. Mottola recalls that Morrow expressed frustration with Section 3.9,

believing that it might allow DEP to avoid its supply obligations, in response to which

Mottola explained that DEP only intended for Section 3.9 to excuse it from its supply obligation if there was a law or regulation that affected DEP’s ability to supply

Gypsum Filter Cake. Mottola admits that he never discussed with Morrow, or anyone

else at CTG, that already-existing laws on the books could trigger Section 3.9.

168. Morrow did not recall any conversations with Mottola regarding Section

3.9 and testified that he understood Section 3.9 could not obligate DEP to produce

synthetic gypsum, but that it did not affect DEP’s obligation to supply Gypsum Filter

Cake.

169. The Court finds that the greater weight of Mottola’s testimony reflects

the parties’ intent at the time they executed the 2008 Agreement as the Court has

found it to be.

170. The parties also offered evidence regarding negotiations of the Force

Majeure Article, first adopted in the 2004 Agreement. During the drafting of the

2004 Agreement, Johnson added a paragraph to the Force Majeure Article that

provided as follows:

In construing and interpreting this Article 13 and other provisions of this Agreement, the parties shall recognize that the primary mission of the Roxboro Plant and the Mayo Plant shall be the safe production of electrical power on an economic basis [(“Primary Mission”)].

(Ex. 92 art. 13.) Johnson testified that he included this language because his

managers instructed him to add it to the agreement but did not recall any further

reason or discussion.

171. CTG deleted Johnson’s proposed paragraph and provided a different

paragraph that stated: In the event a change in a governmental law, rule or regulation, or an action or decision by [DEP], including without limitation, a decision to change fuel sources, affects the quality or quantity of Gypsum Filter Cake generated by [DEP] and [DEP] cannot meet its obligations under this Agreement, [CTG] shall have the remedies set forth in Sections 6.2 and 6.3 of this Agreement.

(Ex. 93 art. 13.)

172. DEP rejected CTG’s proposal and reinserted the “Primary Mission”

paragraph, which CTG accepted. Without further explanation from the parties, and

in light of all other evidence, the Court finds that this proposed language and its

omission from the final agreement neither supports nor detracts from the position of

either party as to the meaning of Section 3.9 of the 2012 Agreement.

173. Significantly, while Section 12.1 of the 2012 Agreement lists several

events that may excuse performance, DEP’s Primary Mission is referenced in the

separate Section 12.4, which does not expressly provide for excused performance.

(Ex. 15 §§ 12.1, 12.4.) This distinction has been in place since the 2004 Agreement.

(See Ex. 6 art. 12.)

174. The language of Section 3.9 was carried forward in the 2012 Agreement

without significant negotiation or modification. There is no evidence that the parties

intended to change the meaning or application of Section 3.9 when they executed the

175. In sum, the Court finds that should it have been necessary to resort to

extrinsic evidence to determine the intent of the parties as to the meaning of Section

3.9 when they entered the 2012 Agreement, the greater weight of the evidence is consistent with the finding the Court has made based on its plain reading of Section

3.9 of the 2012 Agreement.

(b) The Greater Weight of the Evidence Demonstrates that DEP’s Supply Obligation is Neither Excused nor Impossible

176. Eric Grant (“Grant”), DEP’s Vice President of Fuels and Systems

Optimization, explained how DEP currently operates its various plants and

implements the Joint Dispatch Agreement consistent with its effort to comply with

the regulatory Least-Cost-Dispatch Requirement. Based on that testimony and

supporting documentation, the Court finds that DEP has operated its plants,

including the Roxboro Plant and Mayo Plant, consistent with the Least-Cost-

Dispatch Requirement since entering the 2012 Agreement. The Court further finds

that, because of a decline in natural gas prices, the Least-Cost-Dispatch Requirement

has resulted in DEP reducing operations of its coal-fired units, including the Roxboro

Plant and Mayo Plant, resulting in a reduction of DEP’s production of synthetic

gypsum.

177. Current forecasts predict that that Least-Cost-Dispatch Requirement

will, at least for the foreseeable future, continue to require reduced operations at the

Roxboro Plant and Mayo Plant with a consequent continued reduced production of

Gypsum Filter Cake at those plants in amounts that are inadequate to meet DEP’s

supply obligation under the 2012 Agreement.

178. The evidence also demonstrates that DEP will likely continue to produce

at least some quantities of Gypsum Filter Cake at other coal-fired plants, which

either it or its affiliated companies operate. 179. The evidence does not allow any long-range prediction of how fuel prices

may vary going forward, and how changes, if any, will impact plant utilization. It is

then unclear how future changes in fuel prices may affect DEP’s Economic Dispatch

during the remaining term of the 2012 Agreement.

180. Evidence demonstrates that DEP has been able either to transport

Gypsum Filter Cake from other plants or purchase it from affiliate companies. While

there is evidence of significant expense necessary to transport Gypsum Filter Cake

from alternative sources, there is no evidence supporting a finding that supplying

Gypsum Filter Cake from other sources is now or expected to be impossible.

181. Both parties presented testimony from expert witnesses. CTG offered

expert testimony from Ms. Gisele Rankin (“Rankin”), a former attorney on the public

staff of the North Carolina Utilities Commission, who was accepted, without objection

from DEP, as an expert on the subject of utility regulation in North Carolina. DEP

offered expert testimony from Kim Smith (“Smith”), a Rates & Regulatory Strategy

Director with Duke Energy, who was tendered, without objection from CTG, as an

expert on the utilities laws, rules, and regulations that apply to DEP. Both Rankin

and Smith agree that the decreased cost of natural gas has resulted in the Roxboro

Plant and Mayo Plant falling lower in the Economic Dispatch order, and, as a result,

the Roxboro Plant and Mayo Plant are producing less synthetic gypsum.

182. Rankin proffered that DEP’s reduced production of synthetic gypsum is,

in part, caused by its decision to enter into the Joint Dispatch Agreement with DEC.

The Court finds this to be speculative, and that the more probative evidence from Grant suggests that it is more likely that DEP has operated its coal-fired plants more

frequently than it would have had it not entered the Joint Dispatch Agreement.

183. Rankin and Smith both agree that there are no laws or regulations that

prohibit DEP from purchasing synthetic gypsum from third parties or affiliates.

Smith did not opine that DEP’s obligation to supply Gypsum Filter Cake under the

2012 Agreement was inconsistent with DEP’s Primary Purpose at the time it entered

into that agreement. To the contrary, she concurred that, although DEP is not in the

business of brokering the supply of synthetic gypsum, synthetic gypsum is a

byproduct with which DEP must deal, and it entered into the Supply Agreements to

provide a beneficial reuse for that byproduct—an undertaking that was a part of, and

consistent with, DEP’s Primary Purpose of producing reliable and economical

electricity.

184. Rankin and Smith offered testimony regarding the potential as to

whether the North Carolina Utilities Commission will allow DEP to recover any costs

it may incur as a result of meeting its supply obligations under the 2012 Agreement.

The Court finds it unnecessary to determine or opine on what the Commission might

allow.

185. Although there have been changes in the factual circumstances, the

laws and regulations that defined DEP’s Primary Purpose remain as they were when

DEP executed the Supply Agreements. The Least-Cost-Dispatch Requirement

existed long before the parties executed the Supply Agreements. 186. The Court finds that there has been no change of circumstance, either

in fact or law, that prohibits or excuses DEP from supplying Gypsum Filter Cake

pursuant to the 2012 Agreement. The Court finds that Section 3.9 does not excuse

DEP from meeting its supply obligation and that it is not impossible for DEP to meet

its supply obligation as defined by the 2012 Agreement.

(4) Section 6.2 and Section 6.3—Remedies Available to CTG for DEP’s Failure to Meet Supply Obligations

187. Since 2004, Article 6 in the Supply Agreements has included distinct

paragraphs that define the parties’ remedies as follows: (1) Defective Material; (2)

Undersupply by [DEP] (“Section 6.2”); (3) Discontinued Supply by [DEP] (“Section

6.3”); (4) Under Acceptance by [CTG] (“Section 6.4”); and (5) Discontinued Acceptance

by [CTG] (“Section 6.5”). (See Ex. 5 §§ 6.1–6.5; see also Ex. 6 §§ 6.1–6; Ex. 15 §§ 6.1–

6.) Section 9.4 of each of the Supply Agreements provides that “[w]here a remedy is

specified in this Revised Agreement for a particular breach or occurrence, the remedy

specified shall be the sole and exclusive remedy for the breach or occurrence, whether

arising in contract, tort (including negligence), strict liability or otherwise.” (Ex. 5

§ 9.4; Ex. 6 § 9.4; Ex. 15 § 9.4.)

188. The parties both seek a declaratory judgment regarding the meaning

and interpretation of Section 6.3, and specifically whether it becomes CTG’s exclusive

remedy once it is triggered by certain actions taken by DEP. Section 6.3 provides

that once DEP takes certain actions, CTG may terminate the 2012 Agreement and

recover liquidated damages. While the parties agree that DEP has not yet taken the actions that may trigger Section 6.3, they agree that their dispute as to the Section’s

meaning is of immediate importance and justifies the Court’s declaration.

189. The primary dispute regarding remedies is this: DEP contends that once

triggered, CTG’s termination remedy is exclusive; CTG contends that it continues

throughout the 2012 Agreement to have an election between termination and specific

performance. Stated otherwise, DEP contends that if there are acts that constitute a

“discontinued supply,” in contrast to an “undersupply,” then termination with

liquidated damages is CTG’s sole remedy. CTG contends that a “discontinued supply”

is only a variant of an “undersupply,” and the remedies for the two are not mutually

exclusive.

190. Section 6.2 of the 2012 Agreement, titled “Undersupply by [DEP],”

provides in significant part that

[s]ubject to the quantity variations permitted under Section 2.2 and 3.1, in the event [DEP] is unable to deliver to [CTG] the [MMQ] in any month during the term of this Revised Agreement and such failure is not excused under the terms and conditions of this Revised Agreement, [CTG] may, at its election, by written notice to [DEP] within thirty (30) days after the end of the month in which the deficiency occurred, either (a) instruct [DEP] in writing to deliver within thirty (30) days at [DEP’s] sole expense to the Point of Delivery the quantity of Gypsum Filter Cake necessary to satisfy the [MMQ], or (b) purchase on the open market on a commercially reasonable basis for delivery to the [CTG Plant], the amount of Gypsum Filter Cake necessary to satisfy the lesser of [CTG’s] commercial requirements or the [MMQ].

(Ex. 15 § 6.2.) Section 6.2 further provided that CTG may recover the cover price in

excess of the contract price. (Ex. 15 § 6.2.)

191. In net effect, Section 6.2 provides that, unless DEP’s monthly supply

obligation is excused, if DEP fails to deliver the MMQ for any month, then CTG, upon proper notice, can either demand that DEP deliver the MMQ or obtain DEP’s supply

obligation on the market and recover its cover expenses. CTG waives its Section 6.2

remedy for any month in which it fails to provide timely written notice of default.

(Ex. 15 § 6.2; see also Ex. 6 § 6.2.)

192. Section 6.3 of the 2012 Agreement, titled “Discontinued Supply by

[DEP],” provides in significant part that

[if DEP] (a) elects to discontinue altogether supplying Gypsum Filter Cake to CertainTeed; (b) takes any action that prevents or will prevent [DEP] from supplying at least fifty percent (50%) of the Minimum Monthly Quantity each month over a five (5) year period, or (c) takes any other action that causes [DEP] to supply 300,000 Net Dry Tons or less Gypsum Filter Cake per year in two (2) consecutive Contract Years, CertainTeed may terminate this Revised Agreement, and if this Revised Agreement is terminated pursuant to this Section, [DEP] shall pay to CertainTeed as liquidated damages upon written request annual payments for the remainder of the Initial Term . . . equal to the Minimum Monthly Quantity multiplied by the current price of Gypsum Filter Cake then in effect under this Revised Agreement plus [an agreed- upon dollar amount], multiplied by the number of months in that year remaining in this Revised Agreement.

(Ex. 15 § 6.3.) The Court will refer to the three actions specified by Section 6.3 as

“Discontinuance Events.”

193. Sections 6.4 and 6.5 respectively provide DEP remedies for CTG’s

“under acceptance” and for CTG’s “discontinued acceptance.” Section 6.4 provides

that, for any month in which CTG fails to accept the MMQ, DEP may recover the cost

incurred to dispose of any amount of the MMQ that CTG does not accept. (See Ex. 15

§ 6.4.) Section 6.5 provides that DEP may terminate the 2012 Agreement if CTG

takes action defined as discontinued acceptance. If terminating on this basis, DEP

has the election between recovering liquidated damages or requiring CTG to transfer title to the CTG Plant along with the facilities and intellectual property necessary to

operate the plant. (Ex. 15 § 6.5.)

194. Having considered the parties’ positions, the Court finds that Section

6.2 and Section 6.3 are ambiguous, requiring the Court to consider extrinsic events

to determine the parties’ intent when entering the 2012 Agreement.

(a) Drafting History

195. The relevant provisions of Article 6 were first negotiated and agreed to

in the 2004 Agreement. The parties then carried forward the remedies sections from

the 2004 Agreement to the 2008 Agreement and then again to the 2012 Agreement

without significant negotiation or modification.2 Although some witnesses involved

in the negotiations of the 2008 Agreement generally recalled discussions about the

remedies provisions, there is no dispute that Article 6 remained substantially

unchanged after the parties executed the 2004 Agreement and carried it forward

through the 2008 Agreement, and eventually to the 2012 Agreement.

196. CTG prepared the first draft agreement that began the negotiation

process that led to the 2004 Agreement. College sent Johnson the first draft of a

proposed agreement on May 12, 2003. (See Ex. 90.) This draft included remedies for

CTG but did not provide remedies for DEP. (See Ex. 90 art. 6.) In this draft, CTG

drafted two separate untitled paragraphs under the general heading “Remedies for

2 The only substantial changes to Section 6.2 and Section 6.3 from the 2004 Agreement to the

2012 Agreement are that Section 6.3 in the 2012 Agreement is no longer triggered by DEP failing to build its FGD Systems, (see Ex. 5 § 6.3(a)), and the language of 6.2 was modified to reflect the changes made to Section 3.1 in the 2008 Agreement to eliminate the Start-Up Period. (Compare Ex. 5 5 § 6.2, with Ex. 15 § 6.2.) These changes do not affect the current dispute as to whether the Section 6.3 remedy is exclusive once triggered. [CTG].” (Ex. 90 § 6.1.) Section 6.1(a) provided that if DEP failed to deliver the MMQ

in any given month, then CTG could, on a month-to-month basis, either demand that

DEP deliver the MMQ or make purchases on the open market and recover its cover

expenses from DEP. (Ex. 90 § 6.1(a); see also Ex. 91 § 6.2(a).) Section 6.1(b) addressed

specific actions taken by DEP that would materially interrupt DEP’s supply over a

sustained period, and specified that DEP was required to give two years’ advance

notice prior to taking such action, and thereafter pay CTG liquidated damages. (Ex.

90 § 6.1(b); see also Ex. 91 § 6.2(b).)

197. CTG’s initial draft included a provision that the remedies in Article 6

“are, and shall be the sole and exclusive remedies for [CTG] with respect to the subject

matter contained therein.” (Ex. 90 § 6.2.)

198. Although the wording later changed, CTG’s concept of distinct

remedies for a short-term monthly undersupply and a long-term disruption of supply

became the structure around which the final Article 6 was drafted. CTG’s initial draft

provisions were the foundation of what became the final Article 6, as well as Section

9.4.

199. DEP provided no written draft in response to CTG’s initial draft. CTG’s

counsel, Mark Lontchar, edited the initial draft that College sent Johnson on May 27,

2003. (See Ex. 91.) This revised draft added remedies for DEP while not changing

CTG’s remedies, and modified the exclusive remedies provision to make it applicable

to both DEP and CTG. (See Ex. 91 §§ 6.1, 6.2.) 200. Johnson sent DEP’s markup of CTG’s second draft to College on July 24,

2003 (“July 2003 Draft”). (See Ex. 92.) The July 2003 Draft introduced the headings

of “Undersupply by [DEP],” “Discontinued Supply by [DEP],” “Under Acceptance by

[CTG],” and “Discontinued Acceptance by [CTG]” that were ultimately included in

Article 6 of the 2004 Agreement and added the exclusive remedies provision that

became Section 9.4. (Ex. 92 §§ 6.2–6.5, 10.3; see Ex. 5 §§ 6.2–6.5, 9.4.)

201. DEP deleted CTG’s proposed language that would require DEP to

provide two years’ advance notice of action that would lead to a discontinued supply.

CTG did not later propose an alternative advance notice requirement.

202. Johnson testified that DEP separated CTG’s remedies for DEP’s non-

performance into two sections because DEP believed that undersupply and

discontinued supply were two separate events that required different remedies.

Likewise, DEP separated remedies for CTG’s under-acceptance and discontinued

acceptance into two distinct sections. (See Ex. 92 §§ 6.4–6.5.)

203. Mayer and Johnson both testified that they discussed the types of short-

term operational issues that would possibly trigger Section 6.2, including routine

maintenance and equipment failure. Johnson explained that DEP intended Section

6.2 to be the sole remedy for non-recurring, short-term events and Section 6.3 to be

the sole remedy for long-term, forward-looking events that led DEP to decide to either

discontinue supplying Gypsum Filter Cake or take an action that would severely

hinder its ability to supply Gypsum Filter Cake. 204. Mayer agreed that the parties intended Section 6.2 to address short-

term variations in supply caused by business-operational issues. He testified that

Section 6.3 was intended to address a decision by DEP to either completely cut off

supply of Gypsum Filter Cake or that resulted in a substantial interruption in DEP’s

ability to supply Gypsum Filter Cake.

205. The Court finds that the greater weight of the testimony and

documentary evidence is that Mayer and Johnson both recognized a distinction

between short-term failures in supply or acceptance caused by events that could be

remedied quickly, and long-term business decisions by either CTG or DEP that would

cause long-term disruptions in either CTG’s ability to accept or DEP’s ability to

supply synthetic gypsum, and that Mayer and Johnson intended to draft remedies

that recognized this distinction.

206. On August 25, 2003, CTG sent DEP a draft that added the words

“continuously” and “may terminate” into Section 6.3, stating “[i]n the event DEP. . .

(ii) takes any action that materially and substantially diminishes [DEP’s] ability to

continuously supply Gypsum Filter Cake in sufficient quantities to meet the

[MMQ] . . . [CTG] may terminate this Agreement and [DEP] shall pay to [CTG] . . . a

termination fee . . . .” (Ex. 93 § 6.3 (emphasis added).) Ultimately, when adopted,

both Section 6.3 and Section 6.5 provided that the party “may terminate” rather than

providing the termination was automatic. While the term “continuously” was not

expressly incorporated into Section 6.3 and Section 6.5, at least some of the events described in these sections addressed disruptions in supply or acceptance that

continue over a significant period. (Ex. 5 §§ 6.3, 6.5.)

207. Mayer testified that CTG proposed the word “continuously” to

emphasize that the actions that would trigger Section 6.3 “represented an extreme

condition of undersupply.” (Tr. 341:2–3; see also Tr. 340:24–341:7.) Mayer testified

that the “may terminate” language was added to Section 6.3 to clarify that CTG has

the option but not the obligation to terminate under Section 6.3. (Tr. 341:11–13; Ex.

93 § 6.3; Ex. 97 § 6.3.) Mayer testified that CTG wanted the flexibility “to continue

running the plant and seek gypsum from [DEP] instead of terminating.” (Tr. 307:

17–18.) Johnson understood that the intent of this modification was to provide that

the termination remedies were not self-executing, but rather would require the non-

defaulting party to take an action to trigger the termination remedy.

208. Mayer further testified to his current view that, at the time the parties

executed the 2004 Agreement, he believed that if CTG elected not to terminate the

agreement under Section 6.3, then CTG could continue to invoke its remedies under

Section 6.2 throughout the remaining term of the 2012 Agreement, even after events

triggering Section 6.3 occurred. He offered the position CTG has advanced in the

litigation that the triggering events of Section 6.3 are also an undersupply within the

meaning of Section 6.2, so that CTG should have remedies under both provisions for

the entire contract term. Johnson testified to the opposite and indicated that DEP

would not have agreed to such a result. There is no testimony or documentary

evidence that indicates that either Mayer, Johnson, or others involved in the negotiation of the 2004 Agreement ever discussed a belief that the “may terminate”

language CTG proposed was intend to allow CTG to elect between a termination for

a discontinued supply or a specific performance remedy for a continuing undersupply.

209. The greater weight of the evidence is that both parties intended specific

and separate remedies for the separate and distinct events of undersupply or under

acceptance on the one hand, and discontinued supply or discontinued acceptance on

the other hand, and that once the remedy of termination with liquidated damages

was triggered by DEP’s taking action defined by Section 6.3, that remedy became

CTG’s exclusive remedy of the breach of discontinuing supply. The Court further

finds from the greater weight of the evidence that until the Discontinuance Events

occur, CTG may enforce its remedy under Section 6.2 for those months in which DEP

has failed to supply the contractual MMQ, and although Section 6.3 becomes

exclusive when triggered, that exclusive remedy does not retroactively extinguish

remedies CTG had under Section 6.2.

210. The Court finds that the parties intended that the termination remedy

would not be mandatory. As Mayer testified, CTG intended to provide CTG an

opportunity to assess its options once events triggered a potential termination. The

Court finds that the parties understood that, while termination was not mandatory

upon a Discontinuance Event, they did understand and agree that a Discontinuance

Event would afford the non-defaulting party a right to terminate and would displace

all other remedies for that discontinuance, including any right to demand specific

performance as to earlier defaults from month to month. 211. The Court therefore finds that CTG’s assertion that it will have a

continuing right to exercise Section 6.2 remedies throughout the remaining term of

the 2012 Agreement even if DEP takes action that constitutes a Discontinuance

Event is not supported by, and is inconsistent with, the greater weight of the evidence

as to the intent of the parties both at the time the 2004 Agreement was negotiated

and at all times thereafter, including when entering the 2012 Agreement.

212. The Court finds that the parties recognized when drafting the remedies

under Article 6 of the 2004 Agreement, that they were entering into a prospective

twenty-year agreement with uncertain risks, and that, during the course of the term

of that agreement, circumstances might compel either party to discontinue its

performance. The parties did not agree or intend to preclude such a discontinuance,

but provided that any such discontinuance would expose the defaulting party to

termination and liquidated damages determined pursuant to a formula first adopted

in the 2004 Agreement and carried forward in the 2008 Agreement and the 2012

213. The Court’s findings are consistent with the manner and reason that

CTG proposed adding the “may” language to Section 6.3. The Court finds that there

is no evidence to support CTG’s position that adding “may” in Section 6.3 was

intended to provide CTG with the right to elect between the remedies provided in

Section 6.2 and Section 6.3 throughout the 2012 Term.

214. In sum, the Court finds that the parties intended, understood, and

agreed that if DEP takes an action defined as a Discontinuance Event under Section 6.3 of the 2012 Agreement, Section 6.3 will then provide CTG’s sole remedy, but until

DEP takes such an action, CTG can pursue its remedies under Section 6.2 on a

month-to-month basis for any DEP short-term undersupply that is not otherwise

excused.

G. CTG is Entitled to Recover Under Section 6.2 for DEP’s Breaches to Date that Have Not Been Waived

215. In early 2017, Halm consulted legal counsel when he concluded that the

Stockpile would fall below a volume of 250,000 net dry tons. After speaking with

counsel, Halm changed his understanding regarding DEP’s obligations to supply

Gypsum Filter Cake under the 2012 Agreement.

216. CTG’s and DEP’s representatives met on April 5, 2017, and DEP advised

CTG, for the first time, that it believed that the amendment to Section 3.1 in the 2012

Agreement had changed the MMQ to a variable quantity that could fall below 50,000

net dry tons per month based on DEP’s production at its Roxboro Plant and Mayo

Plant. There is no evidence that CTG was aware or had reason to believe prior to

that meeting that DEP interpreted the MMQ in this manner, despite the fact that

the amounts actually delivered or accepted under the 2012 Agreement had varied

from month to month.

217. The evidence demonstrates that for a number of months after April

2017, DEP has not supplied the MMQ as the Court has found it to be under the 2012

218. The Court finds that DEP breached Section 3.1 of the 2012 Agreement

by failing to deliver the MMQ, less acceptable fluctuations defined by Section 3.1, for the months of May 2017, June 2017, and September 2017 through January 2018. In

those months, DEP based its delivery on its definition of the MMQ that the Court has

rejected. For each of those months, CTG provided the notice required by Section 6.2

and demanded that DEP deliver the deficient amount of Gypsum Filter Cake. (See

Ex. 115.)

219. After notice, DEP did not deliver the shortfall between the MMQ and its

actual delivery.

220. CTG and DEP entered into an agreement whereby, for those months,

DEP sold and delivered, and CTG purchased and accepted, Gypsum Filter Cake from

alternative sources at prices that were in excess of the contract price pursuant to the

MMQ, but in accordance with the price set for Other Gypsum as defined by the 2012

Agreement. (See Ex. 15 § 3.6). CTG reserved its right to recover what it contends

were excess payments.

221. DEP delivered Gypsum Filter Cake to CTG in May 2017, June 2017, and

September 2017–January 2018 as follows:

Month Tonnage

May 2017 36,252.97

June 2017 27,547.96

September 2017 34,865.82

October 2017 40,080.01

November 2017 38,006.52

December 2017 31,656.60 January 2018 21,822.09

(See Factual Stipulations, Ex. 1.)

222. The Court finds that for these months, CTG was entitled to receive and

DEP was obligated to deliver at the contract price the MMQ, less acceptable

fluctuations as defined by Section 3.1. Because of DEP’s supply failure, CTG failed

to receive the entire MMQ.

223. Between May 2017 and January 2018, CTG purchased 59,925.17 net dry

tons of synthetic gypsum from DEP directly or from its affiliate in order to

supplement the volumes that DEP delivered, and paid greater than the MMQ

contract price. (Factual Stipulations ¶¶ 4–12; see also Ex. 176.) The parties have

stipulated as to the amount CTG paid in excess of the MMQ contract price.

V. CONCLUSIONS OF LAW

224. Based on the foregoing Findings of Fact, the Court makes the following

Conclusions of Law.

225. The Court has jurisdiction over the parties and the subject matter of this

action.

226. The case was properly designated as a mandatory complex business case

and assigned to the undersigned, who has authority to make Findings of Fact

following the completion of the trial and the submission of all disputed issues for

resolution by the Court without a jury.

227. Any Findings of Fact that are more appropriately deemed Conclusions

of Law are incorporated by reference as the Court’s Conclusions of Law. 228. There is a real and existing controversy as to the terms and enforcement

of the 2012 Agreement, and the Court’s declaration is necessary to settle the legal

rights and duties of the parties to the 2012 Agreement.

229. The 2012 Agreement is a fully enforceable contract, and at the time the

parties entered into the 2012 Agreement, they mutually agreed to all of its material

and essential terms, including but not limited to Section 2.2.3, Section 3.1, Section

3.9, Section 6.2, Section 6.4, Section 9.4, and Section 12.4.

230. When entering the 2012 Agreement, the parties were not mistaken as

to any term of the 2012 Agreement, either as to law or fact, in any manner that

renders any provision of the 2012 Agreement unenforceable, either by mutual or

unilateral mistake, or a failure to agree.

231. Although certain terms and provisions of the 2012 Agreement are

ambiguous, the Court, considering extrinsic evidence where necessary, is able to

discern the intent of the parties at the time they entered the 2012 Agreement.

232. As to Section 3.9 of the 2012 Agreement, the Court concludes that its

meaning can be determined from the plain language of the agreement. Having

considered the extrinsic evidence offered by the parties, the Court further concludes

that the greater weight of that extrinsic evidence is consistent with the Court’s

finding based on Section 3.9’s plain language.

233. The Court concludes that the provisions of Sections 2.2.3, 3.1, 6.2, 6.3,

and 9.4 of the 2012 Agreement are ambiguous and the Court cannot determine the

meaning of these disputed sections from the plain language of the 2012 Agreement, so that it is appropriate that the Court consider extrinsic evidence as to those sections

to determine the intent of the parties when entering the 2012 Agreement.

234. Although the Court has considered only extrinsic evidence regarding

negotiations prior to entering the 2012 Agreement to resolve any ambiguity as to the

intent of the parties when entering the 2012 Agreement, after having heard evidence

offered as to the course of performance from the time the parties entered the

agreement to the time the litigation began, the Court finds that the greater weight of

that evidence is consistent with the Court’s interpretation of the disputed provisions

of the 2012 Agreement, specifically its quantity term defined as the MMQ.

235. Based on the Findings of Fact stated above, the Court concludes,

declares, and decrees that:

a. As used in the 2012 Agreement, the term MMQ means 50,000 Net

Dry Tons of Gypsum Filter Cake;

b. Unless otherwise excused or extinguished, for the remainder of

the 2012 Term, DEP is contractually obligated to supply and CTG

is contractually obligated to accept the MMQ, subject to the minor

fluctuations permitted under Section 3.1;

c. When entering the 2012 Agreement, the parties intended and

agreed that their respective obligations to supply or accept

Gypsum Filter Cake pursuant to Section 3.1 would be satisfied so

long as (1) DEP delivered and CTG accepted between 45,000 to

55,000 net dry tons of Gypsum Filter Cake per month; and (2) over a twelve-month period, DEP delivered and CTG accepted the

lesser of 600,000 net dry tons of Gypsum Filter Cake or the

aggregate actual production of synthetic gypsum at the Roxboro

Plant and Mayo Plant, with the net effect that DEP was required

to deliver and CTG was required to accept between 540,000 and

600,000 net dry tons of Gypsum Filter Cake over a twelve-month

period;

d. The definition of Gypsum Filter Cake as used in the 2012

Agreement is not limited to Gypsum Filter Cake produced at

DEP’s Roxboro Plant and Mayo Plant;

e. When entering the 2012 Agreement, the parties intended and

agreed that DEP may be required to meet its supply obligation by

acquiring Gypsum Filter Cake from alternative sources if its

production at its Roxboro Plant and Mayo Plant is not adequate

to fulfill that obligation;

f. Section 3.9 does not excuse DEP’s supply obligation under the

2012 Agreement because DEP’s further supply obligation is not

inconsistent with its Primary Purpose;

g. There is no current law or regulation that makes it unlawful for

DEP to supply CTG with Gypsum Filter Cake from whatever

source necessary; h. DEP’s supply obligation under the 2012 Agreement has not been

excused by any Force Majeure;

i. It is not impossible for DEP to meet its supply obligation under

the 2012 Agreement, and that supply obligation is not excused by

the doctrine of impossibility;

j. DEP is required to use commercially reasonable efforts to

maintain the Stockpile at 250,000 net dry tons of Gypsum Filter

Cake;

k. If the Stockpile volume falls below 250,000 net dry tons, DEP will

be deemed to be using commercially reasonable efforts if it (1)

delivers the MMQ each month, as provided by Section 2.2.3(b) of

the 2012 Agreement; and (2) places Excess Gypsum, if any, on the

Stockpile until the volume is restored to 250,000 net dry tons;

l. The volume of the Stockpile has fallen below 250,000 net dry tons,

obligating DEP to prepare and deliver to CTG a Replenishment

Plan to restore the Stockpile to 250,000 net dry tons;

m. DEP has breached the 2012 Agreement because the

Replenishment Plan earlier delivered to CTG by DEP, (Ex. 54),

did not satisfy DEP’s obligation under the 2012 Agreement to

provide a Replenishment Plan consistent with the MMQ supply

and acceptance obligations the Court has determined in this

Opinion & Final Judgment; n. In the event that DEP takes any of those actions defined in

Section 6.3 of the 2012 Agreement as a Discontinued Supply by

DEP, such action will constitute a breach of DEP’s supply

obligation under the 2012 Agreement, providing CTG the option

but not the obligation to terminate the agreement and recover

liquidated damages pursuant to Section 6.3;

o. If DEP takes action that constitutes a “Discontinued Supply” as

defined in Section 6.3, CTG will have the option but not the

obligation to exercise this remedy; however, in that event, Section

6.3 shall provide CTG’s exclusive remedy for DEP’s failure to

supply Gypsum Filter Cake after taking such actions; and

p. CTG continues to have the right to pursue its Section 6.2

remedies for any DEP supply failure occurring prior to DEP’s

taking action that constitutes a Discontinued Supply as defined

by Section 6.3.

236. Except as declared above, any further request by either party for

declaratory relief is denied.

237. DEP has failed to carry its burden of proof on its defenses.

238. There is no factual or legal basis that bars CTG’s remedies by

application of the doctrines of unclean hands, waiver, or estoppel.

239. DEP breached its obligation to supply the MMQ of 50,000 net dry tons

per month, subject to fluctuations permitted by Section 3.1 of the 2012 Agreement, for the months of May 2017, June 2017, and September 2017–January 2018. CTG

provided the required notice and is entitled to its remedies under Section 6.2 of the

240. CTG is entitled to recover from DEP that amount paid in excess of the

contract price as stipulated in Exhibit 176, together with interest until paid.

241. DEP is obligated at its own expense to deliver to CTG such additional

amounts as may be necessary to meet its supply obligation for the months of May

2017, June 2017, and September 2017–January 2018. Each party has requested that

it be awarded its costs and attorneys’ fees. The Court concludes that any

consideration of this collateral issue should be deferred.

BASED ON THE FOREGOING FINDINGS OF FACT AND CONCLUSIONS

OF LAW, IT IS HEREBY ORDERED THAT:

1. DEP shall pay to CTG the stipulated amount stated in Exhibit 176 as

payments CTG has made in excess of the contract price, together with

interest until paid;

2. DEP shall, within thirty days of this Opinion & Final Judgment, at the

contract price, deliver as CTG directs, such amounts of Gypsum Filter

Cake as are necessary to fulfill its obligations to supply the MMQ less

acceptable minor fluctuations for the months of May 2017, June 2017,

and September 2017–January 2018, and less amounts already accepted

by CTG; 3. DEP shall within ninety days of this Opinion & Final Judgment provide

CTG with a Replenishment Plant prepared consistent with the MMQ as

the Court has defined it in this Opinion & Final Judgment;

4. In the absence of a timely appeal, any party that seeks to recover its

costs and attorneys’ fees pursuant to Section 16.7 of the 2012 Agreement

shall file its motion, accompanied by a brief and supporting materials,

within forty-five days of the date of this Opinion & Final Judgment;

5. In the event of a timely appeal, any party that seeks to recover its costs

and attorneys’ fees pursuant to Section 16.7 of the 2012 Agreement shall

file its motion, accompanied by a brief and supporting materials, within

thirty days of the final mandate of the highest appellate court;

6. Notwithstanding the reservation of the collateral issue of costs and

attorneys’ fees, this Opinion & Final Judgment is intended to be and is

a final judgment in all respects pursuant to North Carolina Rule of Civil

Procedure 54.

SO ORDERED, this the 28th day of August, 2018.

/s/ James L. Gale James L. Gale Senior Business Court Judge