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Veolia Water North America Operating Services LLC v. SSAB Alabama Inc.

United States District Court, N.D. Alabama, Southern Division

June 24, 2019

VEOLIA WATER NORTH AMERICA OPERATIONS SERVICES, LLC, Plaintiff/Counter-Defendant,
v.
SSAB ALABAMA, INC., Defendant/Counter-Plaintiff.

          MEMORANDUM OPINION

          John E. Ott, Chief United States Magistrate Judge.

         This litigation began in November 2015, when Plaintiff/Counter-Defendant Veolia Water North America Operations Services, LLC (“Veolia”) sued Defendant/Counter-Plaintiff SSAB Alabama, Inc. (“SSAB”) for its alleged anticipatory breach of a Process Water Agreement (the “Agreement”) under which Veolia owned and operated a process water facility that serves a steel mill owned by SSAB.[1] (Doc. 1).[2] Currently before the court is Veolia's motion for summary judgment with respect to SSAB's remaining counterclaims. (Doc. 130). The motion has been fully briefed, (docs. 131, 135, 136), and is now ripe for decision. For the following reasons, the court[3] concludes that the motion is due to be granted.

         I. PROCEDURAL HISTORY

         In its complaint, Veolia alleged that SSAB exercised its contractual option to terminate the Agreement and take title to the process water facility, but indicated its intent not to pay Veolia a $6 million termination fee required under the Agreement. (Doc. 1). Veolia sought an order directing SSAB to pay the $6 million termination fee. (Id.). SSAB answered the complaint and expressly denied any breach or anticipatory repudiation of the Agreement. (Doc. 21). SSAB also counterclaimed against Veolia, requesting a declaratory judgment that it was entitled to a set-off against the termination fee due to Veolia's alleged inability and failure to perform under the Agreement. (Id.)

         On December 18, 2015, the court entered a consent order requiring SSAB to pay the $6 million termination fee to Veolia and requiring Veolia to post a $6 million surety bond to protect SSAB in the event it proved a right and entitlement to a set-off under the Agreement. (Doc. 39). The consent order also provided that “[t]he payment of the $6 million Termination Fee by SSAB, the posting of the Bond by Veolia, and the transfer of [the process water facility] to SSAB shall be without prejudice to any claim, defense or right of any party . . . all of which shall be reserved.” (Id. at ¶ 4). SSAB paid the termination fee on December 31, 2015, and Veolia posted the surety bond as ordered. (See Doc. 40).

         SSAB subsequently filed an amended counterclaim against Veolia. (Doc. 58). In its amended counterclaim, SSAB alleges that Veolia owes it “at least $11, 363, 335.00” for the additional costs SSAB incurred as a result of Veolia's alleged “inability and failure to properly regulate and treat” the water generated by SSAB's steel mill. (Id. at ¶ 4). The amended counterclaim contains claims for negligence, breach of contract, breach of warranty/guarantee, and declaratory judgment. (Id. at 3-7).

         Shortly after answering the amended counterclaim, (doc. 67), Veolia moved for summary judgment on the amended counterclaim, advancing seven separate arguments[4] for why summary judgment should be granted in its favor. (Docs. 68 & 71). In response, SSAB conceded that its claim for negligent breach of contract was due to be dismissed. (See Doc. 89 at 17). Additionally, upon agreement of the parties, the court decided to address four of the remaining six arguments and hold two arguments in abeyance to be renewed after discovery. (Docs. 93, 97). As for the four arguments addressed by the court, the court granted the motion as to the negligence claim and claim for declaratory judgment. (Docs. 97-98). The court also granted the motion to the extent that the amended counterclaim sought the recovery of damages relating to waste disposal costs. (Id.). The court denied summary judgment on the other two grounds and specifically allowed Veolia to reassert its remaining arguments at a later time. (Id.). That time is now.[5]

         II. SUMMARY JUDGMENT STANDARD

         Pursuant to Rule 56 of the Federal Rules of Civil Procedure, a party is authorized to move for summary judgment on a claim or defense asserted by or against the movant. Under that rule, the “court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. Pro. 56(a). “Disposition of a summary judgment motion in a declaratory judgment action is governed by the same basic principles that generally rule the grant or denial of such a motion.” Bingham, Ltd. v. United States, 724 F.2d 921, 924 (11th Cir. 1984).

         The party moving for summary judgment “always bears the initial responsibility of informing the district court of the basis for its motion, ” relying on submissions “which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); see also Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir. 1991); Adickes v. S.H. Kress & Co., 398 U.S. 144 (1970). Where the movant will not bear the burden of proof on a claim or issue at trial, the movant can satisfy that burden by pointing to specific portions of the materials on file that either negate an essential element of the non-movant's claim or that affirmatively indicate “that the party bearing the burden of proof at trial will not be able to meet that burden.” Clark, 929 F.2d at 608; see also United States v. Four Parcels of Real Prop. in Greene & Tuscaloosa Ctys. in State of Ala., 941 F.2d 1428, 1438 n. 19 (11th Cir. 1991). By contrast, when the moving party has the burden of proof at trial, it must support its motion with credible evidence that would entitle it to a directed verdict if not controverted at trial. See Four Parcels, 941 F.2d at 1438. “In other words, the moving party must show that, on all the essential elements of its case on which it bears the burden of proof at trial, no reasonable jury could find for the nonmoving party.” Id.

         Once the moving party has met its initial burden, the nonmoving party must “go beyond the pleadings” and refer the court to evidence demonstrating that there is a genuine issue for trial. Celotex Corp., 477 U.S. at 324. In its review of the evidence, a court must credit the evidence of the non-movant and draw all justifiable inferences in the non-movant's favor. See Stewart v. Booker T. Washington Ins., 232 F.3d 844, 848 (11th Cir. 2000). At summary judgment, “the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).

         III. FACTUAL BACKGROUD[6]

         In 1999, SSAB began construction of a steel mill in Mobile County, Alabama. In July 1999, while the mill was under construction, SSAB and Veolia entered into the Agreement, pursuant to which Veolia agreed to construct a process water facility (the “Facility”) to treat the water that would be circulated and discharged during the production of steel at the mill. (Agreement § 3).[7] The Agreement provided that Veolia would own the Facility and would “operate, maintain and repair” the Facility so as to provide SSAB with treated water meeting certain specifications. (Id. §§ 2.4-2.5, 6.1(1)(a)). SSAB was responsible for “[t]he costs of all off-site treatment and disposal of solid or other waste produced by the … Facility.” (Id. § 4.4(2)).

         A. Rolling Mill Contact Cooling Water System

         SSAB's counterclaims involve Veolia's treatment of process water from SSAB's rolling mill contact cooling water system. In the rolling mill, contact cooling water is sprayed at high pressure onto the steel slabs to remove mill scale[8] from their surfaces and then circulated through various parts and equipment in the rolling mill to cool the slabs. (Deposition of Scott Kelley on 8/16/18 (“Kelley Dep. I”) at 63-64).[9] Afterwards, the rolling mill's contact cooling water goes to the process water facility so it can be treated. Water that contains mill scale exits the rolling mill through a flume. (Id. at 70). The water then enters a pre-sedimentation pit where the heaviest solids settle out of the water. (Id. at 70-71; Schubert Dep. at 51). The water is pumped from the pre-sedimentation pit into two secondary pits where smaller solids settle out.[10] (Kelley Dep. I at 72; Schubert Dep. at 52). From that point, the water collects in the secondary pit “hot well” where it is pumped by three pumps, collectively called the “612 pumps, ” to a header which distributes the water to ten pressure filters. (Kelley Dep. I at 73, 267). The water flows from the top of the filter through sand and gravel media that further collect fine solids from the water. (Schubert Dep. at 148-49). The resulting water is then pumped to cooling towers where the cooled water is collected in a cold well and then either pumped back to the rolling mill for reuse or discharged to the Mobile River. (Kelley Dep. I at 74; see also Agreement §1.1).

         B. Early Disputes Resulting in Settlement and Agreement Amendment

          The steel mill and the Facility began operations in 2001. (Doc. 12 ¶ 22). Shortly thereafter, disputes arose between the parties. Among other issues, Veolia asserted a claim against SSAB for certain costs it had incurred during the construction of the Facility and a claim for increased operation and maintenance costs. SSAB, in turn, claimed that Veolia had failed to meet the requirements of the Agreement with respect to the provision of treated water.

         On December 10, 2003, the parties entered into a settlement agreement and mutual general release (the “2003 Release”).[11] In relevant part, the 2003 Release released Veolia from “any and all manner of claims . . . whether accrued or hereafter maturing . . . resulting from . . . any act, omission, statement, promise, covenant, contract, breach of contract, tort, cause, matter or thing whatsoever occurring or existing from the beginning of time to the date hereof arising out of or relating to the Agreement or the performance of the Services . . . .” (2003 Release ¶ 3). The parties also amended the Agreement (“the 2003 Amendment”)[12] as part of the settlement. The amendment shifted the responsibility for maintenance and repair of the Facility from Veolia to SSAB. (2003 Amendment § 2.5). Veolia, however, remained the owner of the Facility and retained its obligations with respect to the operation of the Facility.

         C. Red Water and its Treatment

         “Red water” is created when heated steel slabs are flattened by passing the slabs through rollers in the rolling mill. (Declaration of Steven Bell (“Bell Decl.”) ¶¶ 6-7).[13] While the steel is in the rolling mill, it is sprayed with water to remove scale that forms on the surface of the hot metal, after which the spray water drains into an open flume and is channeled into the Facility, where it flows through a series of pits and basins and the solids suspended in the water are removed. (Id. ¶ 6). When certain grades of steel are sprayed in the rolling mill, it causes red-colored, microscopic particulate on the surface of the hot metal to be washed into the water and gives the water a red hue. (Id. ¶ 7).

         Although “there is always some red water when . . . steel” is made, (deposition of Paul Wilson on 9/10/18 (“Wilson Dep. I”) at 56), [14] the costs associated with treating the red water became an issue between the parties beginning in 2005. (Wesselman Dep. at 106). At that time, the steel mill began manufacturing X-grade steel which had higher mechanical properties than other types of steel. (Kelley Dep. I at 107, 123). The manufacture of X-grade steel results in higher concentrations of fine iron oxides than other types of steel and, as such, produces more intense red water. (Wesselman Dep. at 72; Wilson Dep. I at 161-62).

         In 2005 and 2006, increased red water incidents were sporadic, (Wesselman Dep. at 130), and Veolia, SSAB and ChemTreat, the chemical vendor, discussed treatment methods for the red water during their weekly meetings.[15] (Kelley Dep. I at 126-30, 135-37). The solution for treatment of the more intense red water was to add more chemicals to the process water, (id. at 125-27), but this solution was expensive. In early December 2005, during one of the weekly meetings, Veolia pointed out multiple costs that were keeping Veolia from maintaining their budget, including increased costs to treat red water. (Doc. 135-6). The plant manager for SSAB at the time “emphasized that [SSAB] [wa]s interested in looking for [a] technical solution[]” to the red water costs, as well as other costs, so overall treatment costs could be controlled. (Id.).

         In 2007 and 2008, more concentrated red water was infrequent. (Wesselman Dep. at 130). In 2009, however, a large order of X-grade steel from SSAB caused red water for months. (Id. at 130-31). The concentrated red water was treated by adding additional chemicals, as well as renting equipment to aid in the treatment. (Kelley Dep. I at 166-68). The solution was expensive: in 2009 alone, Veolia incurred “over $1 million in chemical, labor, and equipment rental costs . . . .” (Bell Decl. ¶ 8). Not only was it expensive, but during this increase of red water, the parties continued to discuss different ways to handle its treatment.[16] (See Wesselman Dep. at 135; Doc. 135-8; Doc. 135-9).

         In 2010 and 2011, the red water incidents again became more intermittent. (Kelley Dep. I at 154). Then, in mid-2012, the frequency of more concentrated red water again increased and continued for a prolonged period due to increased production of X-grade steel. (Id. at 154). In June 2012, SSAB and Veolia made the decision to bring in additional equipment to handle the increase of red water, just as they had in 2009. (Doc. 132-10). Veolia and ChemTreat also began using additional chemicals so that more of the fine iron oxide particles would settle out in the secondary pits before reaching the pressure filters. (Wesselman Dep. at 134-35; see also Kelley Dep. I at 217-18, 285-87).

         From 2012 through November 2013, SSAB, Veolia and ChemTreat continued to develop and refine strategies for treating the red water and improving operations during increased periods of red water. (Kelley Dep. I. at 225). Those strategies included a chemical feed automation program. (See id. at 220-23). During this time period, however, Veolia continued to use increased chemicals to treat the instances of red water. SSAB internally questioned the use of the chemicals, but trusted the judgment of Veolia as “the expert” when it came to the water systems. (See Wilson Dep. I. at 48-50). SSAB, however, “took the position . . . that red water [wa]s a normal part of [the steel making] process . . . [and] these filters should take [care of the issue]” without having to use the additional chemicals and equipment which resulted in the added expenses. (Id. at 53-54, 58, 81).

         In late 2012, SSAB independently retained HDR, Inc., an engineering company, to evaluate the entire water systems, including some areas that were not in Veolia's control, and determine how SSAB might “radically change[]” the process water system. (Wesselman Dep. at 258-60, 263; Wilson Dep. I at 79-80). In November 2013, HDR, Inc. concluded that the two 612 pumps could be reprogrammed to work together in a way that would allow the filters to treat the more concentrated red water without using more chemicals to settle out the fine iron oxide in the secondary pits. (Wilson Dep. I at 297-99; Kelley Dep. I at 232). SSAB employed Deanna DeLucia to reprogram the pumps' controlling software. (Deposition of John Schubert (“Schubert Dep.”)[17] at 129-30; Kelley Dep. I at 232-34, 234, 308). Once the pumps were reprogrammed, Veolia operated the Facility with this new protocol which did not require the use of the additional chemicals and equipment. (See Wilson Dep. I at 88-89).

         D. Payment for ...


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