Peabody COALTRADE International Ltd., a unit of Peabody Energy (NYSE: BTU), asked a federal bankruptcy court for dismissal of a claim against it by Dynegy Danskammer LLC because the matters subject to the complaint should be subject to contract arbitration, not court action.
Dynegy Danskammer and related companies, including Dynegy Holdings LLC, have been in Chapter 11 protection since last November at the U.S. Bankruptcy Court for the Southern District of New York. On June 4, Dynegy Danskammer, which operates coal-fired capacity at the Danskammer power plant in New York state, filed an “adversary proceeding,” which is basically a lawsuit, against Peabody COALTRADE at the bankruptcy court. It accused Peabody COALTRADE of not making available a final vessel of coal out of the Guasare mining operation in Venezuela under a 2008 contract.
Dynegy and Peabody had entered into a Jan. 1, 2008, contract for the sale and delivery of coal from Guasare, and that contract contained an arbitration clause, said Peabody in its July 24 response. “This dispute is subject to arbitration pursuant to the parties’ pre-petition contract,” Peabody wrote. “Dynegy’s claims against Peabody all arise from and relate to an alleged failure to deliver a shipment of coal for loading at a port in Venezuela, and are all within the scope of the parties’ agreement to arbitrate. Dynegy’s claims do not involve rights created under the Bankruptcy Code or affect a core bankruptcy function, and arbitration will not conflict with any policy of the Bankruptcy Code. Peabody’s motion to compel arbitration should accordingly be granted.”
The contract designates the Bulk Wayuu Floating Storage Transfer Station at Lake Maracaibo, Venezuela, as the port where Peabody will load the coal shipments onto a vessel arranged by Danskammer to transport the coal. On numerous occasions since the contract’s execution, Peabody has failed to timely and completely perform its obligations under the agreement, repeatedly delaying coal shipments or declaring force majeure, said Dynegy Danskammer in its complaint.
In December 2011, Peabody proposed to replace the coal it was supposed to deliver for shipment with coal of such low quality that Danskammer would have been entitled under the contract to reject the shipment outright, the complaint said. On Dec. 16, in an attempt to mitigate the demurrage damages it was incurring as a result of the MV Bahama Spirit having to wait to load the shipment, Danskammer sent Peabody proposed price and quality requirements necessary for Danskammer to accept this out-of-specification coal. Peabody forwarded Danskammer’s requirements to its supplier, and never formally accepted or rejected Danskammer’s proposal, despite repeated requests from Danskammer for an update, the complaint said.
On Dec. 20, after the MV Bahama Spirit had been sitting empty for two weeks, PCIL delivered notice declaring force majeure under the contract based on a declaration of force majeure from its supplier, Carbones Del Guasare (CdG). CdG’s declaration stated that its force-majeure condition resulted from rain disrupting coal transport on the road connecting the mine to the loading port. As a result, Danskammer said it had no choice but to release the MV Bahama Spirit on Dec. 20 without Peabody delivering any coal, even out-of-spec coal, for loading. Peabody’s and CdG’s force-majeure declarations both lasted until Jan. 9, 2012. On Dec. 21, Danskammer demanded immediate repayment of the $1,992,245 it had prepaid for the coal shipment that was never delivered. Peabody repaid that amount on Jan. 3.
On Jan. 19, Alex Baliff, Managing Director of Peabody COALTRADE, sent a letter to Danskammer admitting that his company had failed to hold the final shipment of coal for delivery to Danskammer, and asserting that Peabody was not required to do so under the letter agreement. He went on to assert that it was clearly unreasonable for Danskammer to have assumed that coal would continue to be dedicated and stockpiled at the loading port for Danskammer’s benefit for two extended delay periods.