In the News The Am Law Litigation Daily

Shout-Out: Kirkland and Crowell Score $109 Million for Railroad Clients

The Am Law Litigation Daily discussed Kirkland's win for BNSF in a lawsuit against FirstEnergy for breach and repudiation of a long-term contract for the transportation of coal to FirstEnergy’s coal-fired power plants.

Litigators from Kirkland & Ellis and Crowell & Moring scored a $109 million win for their railroad clients in a contract fight with FirstEnergy Solutions Corp. over transporting coal.

In a filing with the U.S. Securities and Exchange Commission, FirstEnergy on Wednesday disclosed the settlement, which it said came after a panel of arbitrators denied the company’s demand for declaratory judgment and ruled that it “breached and repudiated” a long-term contract with BNSF Railway Co. and CSX Transportation Inc. to transport coal.

The arbitration is confidential, but BNSF in related litigation pending in U.S. District Court for the Northern District of Texas lays out the contours of the fight.

According to BNSF, FirstEnergy in 2008 sought to lock in long-term transportation rates to ship coal from mines to FirstEnergy’s coal-fired power plants.

FirstEnergy allegedly committed to ship a minimum volume of coal each year, and BNSF in return offered the company rebates and other incentives. Under the terms of the contract, if the amount of coal shipped fell short, FirstEnergy would pay liquidated damages for the shortfall, according to BNSF.

But shortly after striking the deal, the market for coal changed. FirstEnergy shut down all but one of the plants covered by the contract and has failed to ship the minimum volume requirement—or even come close.

FirstEnergy, represented by Quinn Emanuel Urquhart & Sullivan partners Michael Carlinsky (who chairs the firm’s complex litigation practice and is co-chair of its insurance litigation practice), Richard Werder Jr. and Mareen Shah, claimed force majeure.

The company stated “that its decision to close the remaining plants was the ‘result of the new Mercury Air Toxics Standards (‘MATS’) issued by the U.S. Environmental Protection Agency in December 2011,’ and that it would cease all coal deliveries the next day,” according to the BNSF complaint, which was filed last month. “FirstEnergy made this decision notwithstanding that the MATS regulation certainly did not require the plants to shut down, and in fact did not even require compliance for several years hence.”

According to FirstEnergy’s SEC filing, the arbitration panel rejected the company’s claim that force majeure excused its performance.

The company in its filing also cautioned that it is “subject to separate proceedings with BNSF and Norfolk Southern Corp. (NS) related to another long-term coal transportation contract. Although the proceedings are still in the early stages, the parties to this dispute are also engaged in settlement discussions. If the BNSF and NS dispute is not settled or definitive settlement agreements are not finalized with all the parties, the amount of damages owed to CSX, BNSF and NS could be material and may cause FES to seek protection under U.S. bankruptcy laws.”

BNSF was represented by Kirkland partners Daniel Donovan, Bridget O'Connor and Judson Brown.

CSX turned to Crowell partners Alan Howard and Scott Winkelman; counsel Emma Burton and Luke van Houwelingen; and associates Turkessa Brown and Sehar Sabir.

Spokespeople for both firms declined comment.

Quinn Emanuel’s Carlinsky did not respond to a request for comment.