United States District Court, D. Colorado
FINDINGS OF FACT AND CONCLUSIONS OF LAW
Y. DANIEL, SENIOR UNITED STATES DISTRICT JUDGE
matter came before the Court on a bench trial on Claim 1 on
February 7 to February 10, 2017. Claims 2 through 5 have been
bifurcated (see ECF No. 130), and are dependent on
the outcome of Claim 1. As ordered by the Court, the parties
filed supplemental proposed Findings of Fact and Conclusions
of Law on February 21, 2017. This Order represents my
Findings of Fact and Conclusions of Law as to Claim 1 of the
case involves a complex series of commercial contracts and
modifications thereto that were developed through significant
negotiations between the Parties and played out across a
decade-long course of performance and course of dealing.
Stillwater argues that Power Mount's failure to deliver
materials that Stillwater prepaid for entitles Stillwater to
the return of the prepayments made. Power Mount contends that
Stillwater bore the risk of loss for its efforts to
significantly increase its intake of catalytic converters
that it asked Power Mount to source, and thus Stillwater is
not entitled to the return of the prepayments.
Stipulated Findings of Fact
Plaintiff Stillwater is a mining and recycling company,
headquartered in Colorado, with most of its operations in
Defendant Power Mount is small, family-owned company based in
of Stillwater's business is the recycling (through
smelting and refining) of automotive catalytic converters to
recover the precious metals-platinum, palladium, and
Defendant Power Mount purchases automotive catalytic
converters, decans those converters (i.e., opens the shell of
catalytic converters to remove the catalyst), and sells the
decanned catalyst to companies like Stillwater, which then
extract the precious metals.
Stillwater and Power Mount started their contractual
relationship in 2003, with an agreement titled
“Secondary Materials Processing Agreement” (the
Under the 2003 Contract, Power Mount would send Stillwater
decanned catalysts, and Stillwater would pay Power Mount for
such materials in two installments: the first when Stillwater
accepted delivery of the decanned catalysts, and the second
after Stillwater had determined the final value of the
platinum, palladium, and rhodium (“Platinum Group
Metals” or “PGMs”) in the delivered
2005, the parties entered into an agreement titled
“Amended and Restated Secondary Materials Processing
Agreement.” 8. The biggest change between the 2003
Contract and the 2005 Restated Contract is that under the
2005 Restated Contract, Stillwater could make a prepayment to
Power Mount so Power Mount could use that money to purchase
catalysts for sale to Stillwater.
described in more depth below, Stillwater's payments
followed a three tiered method, where: (i) Stillwater would
first prepay roughly 50% of the value of the materials after
it received a form from Power Mount in which Power Mount
agreed to sell the materials to Stillwater; (ii) Stillwater
would next prepay approximately 40% of the value of the
materials after Stillwater received the materials; and (iii)
Stillwater would pay the remaining approximately 10% after
final confirmation of volume/value.
Although most of the transactions between the parties fell
under this 50-40-10 model in 2008, the parties would also
occasionally sell and purchase certain material under a 90-10
model, whereby Stillwater would prepay approximately 90% of
the value of the materials after confirmation of shipment and
pay the remaining approximately 10% of the value after a
subsequent period of time.
With regards to the first prepayment of approximately 50%,
which is the subject of this lawsuit, the 2005 Restated
Contract provides that Power Mount will send Stillwater a
“Metal Purchase Form . . . wherein Power Mount will
offer to Stillwater ounces of Metal . . . at a price to be
determined by Stillwater and will provide Stillwater with the
Estimated Delivery Date of the Secondary Materials containing
such Offered Ounces.” 12. This Metal Purchase Form, set
forth as Appendix A to the 2005 Restated Contract, explained
that “Power Mount hereby agrees to sell and Stillwater
hereby agrees to purchase the following Offered Ounces of
Metal.” 13. The 2005 Restated Contract provided:
“Power Mount shall not include on a Metal Purchase Form
any Metal that Power Mount does not reasonably expect to
deliver to the Facility within 60 days from the date of the
Metal Purchase Form.” 14. Within one business day of
receiving this Metal Purchase Form, Stillwater would make its
first prepayment - the approximately 50% prepayment.
Following Stillwater's receipt and acceptance of
materials from Power Mount, Stillwater would pay
approximately 40% of the value of the materials in a second
prepayment, and then after a determination of the Final Lot
Value, Stillwater would make a final payment of approximately
Further, the 2005 Restated Contract sets forth that
“Stillwater may elect to suspend or terminate
prepayments to Power Mount at any time during this Agreement
for whatever reason.” 17. Stillwater kept track of the
outstanding first prepayments it made to Power Mount in a
spreadsheet, which it would send at least every two months to
Doug Meece at Power Mount.
Power Mount wanted this information from Stillwater as it was
“important” to Power Mount and it “wanted
to see how much were the prepayments outstanding.” 19.
If there were errors in these prepayment outstanding
spreadsheets, Power Mount would report such to Stillwater.
Power Mount, however, neither found nor reported errors in
the prepayment outstanding spreadsheets.
prepayment outstanding spreadsheet as of December 31, 2008,
which Stillwater sent Power Mount on January 5, 2009, showed
a “Total Prepaid Outstanding” of “$28, 542,
ADDITIONAL FINDINGS OF FACT
parties entered into the 2005 Agreement because Stillwater
wanted to increase its shipments of spent auto-catalyst from
Power Mount to 20 tons of PGM deliveries per day.
Under the 2003 contract, Power Mount was delivering
“probably consistently 5 to 7 tons per day.” 24.
In a letter from Greg Roset, Stillwater's Vice President
and General Manager, to Paul Meece, one of Power Mount's
owners, dated March 8, 2005, Stillwater outlined the goals of
the 2005 Agreement and the Parties' stated intentions as
“1. You want to ‘put some money in your
2. Power Mount is not in a position to place its business at
risk from the cash flow requirements needed to expand its
operations to the 20-ton per day level.
3. The ‘competition' is stepping up their efforts
to take business away from Power Mount.
4. Power Mount has been approached by at least two large
decanners who are interested in developing a relationship.
Power Mount is not in position to take on the additional cash
outlay to proceed with these decanners.”
(Trial Ex. 20, at 1).
trial testimony of Doug Meece and the March 8, 2005 Letter
from Stillwater indicate that the intent of the parties in
drafting the 2005 Agreement was to avoid Power Mount having
to expend or risk its own money in assisting Stillwater in
ramping up its PGM recycling business to 20 tons of PGMs per
day. Stillwater recognized that Power Mount was not willing
to “place its business at risk” by increasing the
delivery volume because of the cash outlay required and
resulting risk of nondelivery of which Stillwater was made
Greg Roset's trial testimony indicates that the concept
of the First Prepayments, which is the mechanism by which the
money was lost in this case, was Stillwater's idea,
rather than Power Mount's idea.
Stillwater's March 8, 2005 Letter also clarified that it
was Stillwater's intent in the new agreement that Power
Mount would not have any “risk” under the new,
forthcoming First Prepayment structure, stating that
“[b]y accelerating the prepayment for catalysts, the
cash requirement for the expanded supply plus the existing
supply would come from [Stillwater]. This would significantly
reduce or even eliminate any cash flow risk for Power Mount
that [Stillwater] is aware of.” (Trial Ex. 20, at 2).
Stillwater further clarified in the March 8, 2005 Letter that
its intent for what would ultimately become the 2005
Agreement was to use its financial resources to help Power
Mount aggressively grow the parties' market share of the
PGM recycling business while minimizing any risk to Power
2005 Agreement incorporated the “First
Prepayment” concept that Stillwater proposed in its
March 8, 2005 Letter to Power Mount. During calendar year
2008, pursuant to the then-operative 2005 Agreement,
Stillwater provided money to Power Mount, which was forwarded
as “First Prepayments, ” so that Power Mount
could collect catalytic converters from its suppliers to then
break down and ship to Stillwater.
Power Mount only received First Prepayments for materials
that it “reasonably expected” to deliver, and it
never guaranteed the delivery of any particular Lot.
There is no evidence that during the negotiations that led to
the 2005 Agreement that Stillwater expected that Power Mount
would guarantee delivery, and nor did Stillwater expect that
Power Mount would reimburse it for any lost First
Prepayments. Mr. Meece testified that no such discussions
occurred, and nor would they have, in light of
Stillwater's acknowledgment that Power Mount could not
put its business at risk.
There is no language in the 2005 Agreement that places the
financial risk of lost First Prepayments on Power Mount.
There are no guarantees, no loan agreements, or lines of
credit extended by Stillwater that could have created a debt
obligation for Power Mount.
Meece also testified that Stillwater never inquired with
Power Mount whether Power Mount had the financial ability to
underwrite or guarantee the repayment of the First
Prepayments and that he made Stillwater aware of the
potential risk that Power Mount's collectors may not
deliver the promised catalytic converters after receiving the
First Prepayments. Mr. Meece testified that Power Mount only
filled out a metal purchase form if Power Mount reasonably
expected to delivery PGM materials to Stillwater.
Stillwater and Power Mount did approximately $650 million
dollars of business together between January 1, 2009 and
“shortfall” in delivered ounces at issue in this
case, approximately $28.5 million, was only about 4% of the
Parties' business for shipment of PGM ounces from Power
Mount to Stillwater during 2008.
From testimony and evidence at trial, I find that there are
no contractual provisions in the 2005 Agreement that place
the risk of loss of the First Prepayments with Power Mount.
Section 9.4 of the 2005 Agreement, as Stillwater eventually
conceded in Closing Argument, was intended only to reconcile
outstanding amounts owed on delivered Lots.
March 8, 2005 Memorandum from Stillwater to Power Mount
explained that “[b]y accelerating the prepayment for
catalysts, the cash requirements for the expanding supply
plus the existing supply would from [Stillwater].” Mr.
Meece testified that he explained the risks of the First
Prepayments to Stillwater including the risk of non-delivery.
Thus, it was implicit in the 2005 Agreement in light of the
parties' collective and stated intent that Power Mount
advance Stillwater's money to downstream suppliers
notwithstanding the risk of non-delivery, a risk that
Stillwater's former Chief Executive Officer, Francis
McAllister, testified by video deposition at trial that
Stillwater was taking the risk with its “eyes wide
open” to increase the amount of materials that would
eventually be shipped by Power Mount to Stillwater's
facility. Similarly, Stillwater's General Counsel at the
time testified as follows: “In perfect hindsight, there
was a risk and we did take that risk.” 39. Stillwater
filed its 2007 Annual Report and 10-K with the SEC and
explained that the First Prepayments to Power Mount were
fully at risk. The 2007 Annual Report and 10-K provided, in
“Under these sourcing agreements, [Stillwater] advances
cash for purchase and collection of these spent catalyst
materials. These advances are reflected as advances on
inventory purchases on the balance sheet until such time as
the material has been received and title has transferred to
[Stillwater]. However, until the material has
been procured, a portion of the advances are unsecured and
the unsecured portion of these advances represents a
substantial share of the total amount advanced. This
unsecured portion is fully at risk should
the supplier fail to deliver material as promised or
experience other financial difficulties. Any
determination that a supplier is unable to deliver the
promised material or otherwise repay these advances would
result in a substantial charge against earnings.”
(Trail Ex. A4, at ¶ 4-067) (emphasis added).
one point during 2008, the outstanding balance on the First
Prepayments was approximately $50 million.
From July to December of 2008, Stillwater drafted numerous
internal emails that demonstrated approval from
Stillwater's executive team for additional First
Prepayments to Power Mount even though the outstanding
balance was in the tens of millions of dollars.
no point during 2008 did Stillwater ever demand that Power
Mount repay the outstanding balance of First Prepayments.
Consistent with this testimony, I find that Stillwater made
no effort in 2008 to attempt to shift the risk of loss of the
First Prepayments to Power Mount or hold it financially
responsible in any manner.
While the 2005 Agreement was still operative, after the
financial crisis of 2008 and after the alleged losses
occurred, the parties continued doing business together and
Stillwater sent at least thirteen revisions to the 2005
Agreement to Power Mount between December 24, 2008 and
September 28, 2012, altering the payment terms and other
critical terms of the 2005 Agreement without once mentioning
the alleged outstanding First Prepayments of ...