Judge Johnston Considers Novel Issue Regarding Contract Repudiation

June 18, 2020

Publication| Commercial Litigation

In AMG Vanadium LLC, v. Global Advanced Metals U.S.A., Inc., C.A. No. N17C-0301637-MMJ CCLD, Judge Johnston considered cross-motions for summary judgment and motion to dismiss counterclaims brought by plaintiff AMG Vanadium LLC (“AMG”). Each of these motions turned on whether Global Advanced Metals U.S.A., Inc. (“GAM”) could repudiate its contract with AMG after it was notified of AMG’s inability to perform.

The dispute related to a supply agreement for the supply of tantalum pentoxide entered into in October 2012 between AMG as supplier and GAM as buyer. Tantalum is a rare resource used in the consumer electronics industry that is found in regions known for corruption and human-rights abuses. To address these concerns, the supply agreement required AMG to provide ethically sourced (by regulatory and industry standards) tantalum pentoxide to GAM for five years. At the time of contracting, the price of tantalum was rising. Accordingly, the supply agreement set a base price that was at a premium to the market price at the time GAM and AMG entered into the agreement. Pursuant to the supply agreement, GAM made a $20 million pre-payment and in return was promised tantalum pentoxide at the base price until the amount of tantalum delivered equaled the $20 million credit. The parties revised the supply agreement in August 2015. The revision maintained the base price on the remaining tantalum pentoxide due under the original agreement, but AMG would make downward adjustments to the price GAM was obligated to pay for future orders.

The parties performed under the supply agreement until January 2017, when AMG experienced a fire at one of its facilities. After notification of the fire, GAM requested adequate assurances that AMG would continue to source tantalum that was ethically sourced. On March 13, 2017, AMG offered to source required amounts of tantalum pentoxide from third-party sources until its repairs were complete. AMG, however, did not disclose the identity of the third-party source or provide other information necessary to confirm that the tantalum was ethically sourced. Without further correspondence, GAM found this assurance inadequate and repudiated the supply agreement on March 22, 2017.

Thereafter, AMG filed a complaint for breach of contract that alleged the repudiation was wrongful. GAM responded and brought several counterclaims related to AMG’s performance under the supply agreement. The central dispute on the cross-motions for summary judgment was whether AMG provided adequate assurances such that GAM’s repudiation of the contract was wrongful under Delaware’s codification of UCC Article 2 at 6 Del. C. §§ 2-609 and 2-612.

In considering the parties’ motions, Judge Johnston noted that no Delaware case was presented where a court had granted summary judgment on the issue of adequate assurances. Judge Johnston did not deviate from this trend and denied GAM’s motion for summary judgment on the issue of adequate assurances because there were material disputes of fact regarding whether the assurances AMG provided were sufficient. A key factual dispute was whether AMG was required to disclose the third-party source used to cover the deficit because the supply agreement required any tantalum pentoxide to be ethically sourced. The court found that whether AMG was required to disclose the source was dependent upon factual and expert discovery for which there was competing evidence in the record. Accordingly, the court denied GAM’s motion for summary judgment. Because the other motions for summary judgment depended on whether GAM had repudiated the contract, the court denied those motions as well.

Analysis: In this case, Judge Johnston noted that no party cited a Delaware decision granting summary judgment in a case involving adequate assurances. Judge Johnston continued this trend. In so holding, Judge Johnston carefully considered the arguments presented and determined that a trial was necessary to resolve material issues of fact. Since its inception, the CCLD has tried several cases in which there were factual disputes relating to complex commercial agreements.

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