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Stillwater Mining Co. v. Power Mount Inc.

United States District Court, D. Colorado

April 13, 2017

STILLWATER MINING COMPANY, Plaintiff
v.
POWER MOUNT INCORPORATED, Defendant.

          FINDINGS OF FACT AND CONCLUSIONS OF LAW

          WILEY Y. DANIEL, SENIOR UNITED STATES DISTRICT JUDGE

         This 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 Amended Complaint.

         This 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.

         FINDINGS OF FACT

         A. Stipulated Findings of Fact[1]

         1. Plaintiff Stillwater is a mining and recycling company, headquartered in Colorado, with most of its operations in Montana.

         2. Defendant Power Mount is small, family-owned company based in Somerset, Kentucky.

         3. Part of Stillwater's business is the recycling (through smelting and refining) of automotive catalytic converters to recover the precious metals-platinum, palladium, and rhodium-within them.

         4. 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.

         5. Stillwater and Power Mount started their contractual relationship in 2003, with an agreement titled “Secondary Materials Processing Agreement” (the “2003 Contract”).

         6. 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 catalysts.

         7. In 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.

         9. As 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.

         10. 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.

         11. 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.

         15. 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 10%.

         16. 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.

         18. 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.

         20. Power Mount, however, neither found nor reported errors in the prepayment outstanding spreadsheets.

         21. The 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, 201.”

         B. ADDITIONAL FINDINGS OF FACT

         22. The 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.

         23. 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 follows:

“1. You want to ‘put some money in your pockets'.
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).

         25. The 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 aware.

         26. 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.

         27. 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).

         28. 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 Mount's business.

         29. The 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.

         30. Power Mount only received First Prepayments for materials that it “reasonably expected” to deliver, and it never guaranteed the delivery of any particular Lot.

         31. 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.

         32. 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.

         33. Mr. 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.

         34. Stillwater and Power Mount did approximately $650 million dollars of business together between January 1, 2009 and early 2014.

         35. The “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.

         36. 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.

         37. The 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 assumed.

         38. 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 pertinent part:

“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).

         40. At one point during 2008, the outstanding balance on the First Prepayments was approximately $50 million.

         41. 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.

         42. At no point during 2008 did Stillwater ever demand that Power Mount repay the outstanding balance of First Prepayments.

         43. 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.

         44. 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 ...


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