Thursday, October 8, 2020

Did contract dispute between Drummond Company and Norfolk Southern play a role in the head-on vehicle crash that seriously injured Burt Newsome?


Burt Newsome crash scene

The head-on vehicle crash that nearly killed Birmingham attorney Burt Newsome remains shrouded in mystery, so how does one go about trying to unravel the unknown? One possibility, at least for starters, is to look for connections between and among entities that are Newsome's recent courtroom adversaries (Drummond Company, Balch Bingham, Alabama Power) and an entity that is known to have a tie to the crash itself (Norfolk Southern).

Our initial research reveals one such connection, and it is curious, to say the least. The connection is between Drummond and Norfolk Southern, which probably should not be a surprise, given that Drummond produces coal and Norfolk Southern hauls freight, such as coal, around the country.

Published reports indicate the companies have done business for years, but the relationship has turned sour due to a breach-of-ontract lawsuit over the volume of coal to be transported to power plants around the Southeast. The case originated in the U.S. Western District of Virginia (Roanoke), with a jury finding that Norfolk Southern will have to refund almost all of $35 million in fees and penalties that Drummond has paid it. The case now is set to be heard before the U.S. Fourth Circuit Court of Appeals (Richmond), after a lengthy delay for post-trial motions. From a report by Angela Coker at the Birmingham Business Journal (BBJ):

A jury has sided with Drummond Coal Sales Inc. in a lawsuit the company filed against Norfolk Southern Railway (NYSE: NSC)

Drummond Coal, a subsidiary of Drummond Co. Inc. – one of Alabama’s largest manufacturers – entered into a shipping contract with Norfolk Southern Railway providing for rates to 23 specified coal-fired power plants from Shipyard River Terminal owned by Kinder Morgan in Charleston, South Carolina.

The nine-person jury determined NS broke the contract about six months after it was signed and, in a declaratory judgement, relieved Drummond of paying in excess of $40 million still owed on the contract and determined NS will have to refund Drummond all or virtually all of the $35 million it has paid since 2010. . . .

How did the contract go awry? Here is how BBJ described the jury's findings:

The jury found NS broke its contract with Drummond about six months after it was signed by entering into separate contractual dealings that devalued Drummond’s contract. During discovery, Drummond obtained NS’s confidential contracts with the utilities that own the plants and learned the terms of those contracts either required the utilities to use their own shipping contract or else pay liquidated damages, making Drummond’s contract worthless, and/or gave financial incentives to the utilities to purchase coal other than Drummond’s.

Norfolk Southern has claimed this was a case of buyer's remorse and that Drummond knew the risks, according to industry publication RT&S.

The contract contained guaranteed minimum volumes that, if not met, required Drummond to pay liquidated damages, and between 2010 and 2014, Drummond paid NS over $35 million in liquidated damages. The liquidated damages escalated each year, but over the term were between $7 million and $8 million. Other than a few shipments in 2010, Drummond has not shipped a single ton on the contract between 2011 and present.

How could this connect to the Newsome crash? The answer to that question remains murky, but we know this:

* Newsome has filed a $75 million lawsuit against Drummond on behalf of former executive David Roberson;

* Norfolk Southern, at the moment, is on the hook to Drummond for about $35 million;

* The driver of the SUV that hit Newsome, in a crash that shows signs of being staged, works at the Irondale, AL, office of Norfolk Southern.

How does all of this add up? Well, some key pieces to the puzzle remain outstanding. But the search for those pieces is ongoing.

Norfolk Southern

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