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May 3, 2004.

PCS SALES (USA), INC., Plaintiff, -against- NITROCHEM DISTRIBUTION LTD., Defendant

The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge


PCS Sales (USA), Inc. ("PCS") brings this diversity action against Nitrochem Distribution Ltd. ("Nitrochem"), seeking a declaratory judgment that PCS had no contractual obligation to purchase ammonia from Nitrochem in 2002.*fn1 Nitrochem counterclaims, arguing that there was a valid and binding contract, which PCS breached. A bench trial was held on March 31 and April 1, 2004. At the close of the trial, Nitrochem moved for judgment as a matter of law.*fn2 For the reasons set forth below, Nitrochem's motion and counterclaim are denied and PCS's application for declaratory judgment is granted. Pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, the Court makes the following findings of fact and conclusions of law.


  "The facts of this case sound like the delight of a contracts professor, if no one else."*fn3 PCS, a Delaware corporation headquartered in Northbrook, Illinois, is a subsidiary of Potash Corp. of Saskatchewan.*fn4 PCS's primary business is the sale of fertilizer and chemical products produced by affiliated companies for use in various agricultural and industrial applications. Additionally, PCS purchases various fertilizer and chemical products, including ammonia, for resale to its affiliates or to unaffiliated customers.*fn5

  Nitrochem, a Swiss corporation with its principal place of business in Binningen, Switzerland, is represented in the United States by its agent, Altus Corp. ("Altus"), a New Jersey company.*fn6 Nitrochem is engaged in the business of selling anhydrous ammonia and other chemical products produced by JSC Togliattiazot, a Russian corporation.*fn7

  A. The 1998-2000 Ammonia Supply Agreements

  In each of the first three years of their relationship, the parties negotiated and entered into one-year written agreements.*fn8 Specifically, the parties met and, by December of each year, signed an agreement for the sale and purchase of anhydrous ammonia in the following calendar year.*fn9 Among other common provisions, each of the contracts provided for the calculation of the sale price solely by reference to a published index, and the delivery of the ammonia in shiploads of 35,000 metric tons.*fn10 There were, however, slight differences between the contracts in terms of volume,*fn11 and the presence of an automatic renewal, or "evergreen clause." Specifically, the 1999 contract contained an evergreen clause,*fn12 but the 1998 and 2000 contracts did not.*fn13

  B. The 2000-01 Contract Negotiations

  In late September or early October 2000, PCS and Altus met at PCS's Illinois offices to discuss contract terms for the year 2001,*fn14 In particular, the parties addressed the possibility of adding an automatic renewal clause and implementing a pricing mechanism based on negotiation, rather than published indices.*fn15 The parties also agreed that it would be mutually beneficial for them to continue doing business while negotiating a contract for 2001.*fn16 Thus, Rock, speaking on behalf of PCS, notes that he and his associate, George Alleyne, stated that:
it was [PCS's] intention . . . to have 16 or 18 cargoes [in calendar year 2001] . . . and we developed a logistical program that [] could manage that amount and [Nitrochem] expressed that [it] felt it was important business for [it]. [Nitrochem] didn't want to change anything per se so between [the parties, so] we said let's continue to do business together while we negotiate a contract for 2001 and then in the event that we are able to conclude a contract for 2001, that those shipments would become part of that. . . .*fn17
  Following this meeting, Altus and PCS exchanged numerous drafts,*fn18 but by the end of December 2000, they had not reached an agreement that both parties were willing to sign.*fn19 Nonetheless, in January 2001 Nitrochem delivered, and PCS accepted, shipments of ammonia.*fn20 For each shipload of ammonia delivered to PCS in 2001, Altus prepared and transmitted to PCS a set of payment documents, including a price calculation, commercial invoice, ocean bills of lading, certificate of quantity, and certificate of quality. On each of these invoices, Nitrochem wrote the following: "Re: . . . Delivery in accordance with the contract for 2001."*fn21 The price for these shiploads was determined by the published index method, and the deliveries were made at regular intervals throughout the year. There were no demurrage charges applied to any of these shipments.*fn22

  The parties continued to trade drafts for the 2001 contract in January and February,*fn23 and on March 28, 2001, apparently growing impatient, PCS submitted to Nitrochem a signed contract.*fn24 Rather than countersign the agreement, Nitrochem sent an email to PCS on May 2, 2001, indicating that there were several provisions to which it would not agree.*fn25 In particular, Nitrochem objected to the "competitive provision" and the inspection, warranty, indemnification, termination, and remedies clauses, in their entirety, as well as some of the language in the "taxes" and "complete agreement" clauses.*fn26

  Thereafter, the parties continued their negotiations, exchanging drafts and comments over the next several months*fn27 with the objective of entering into a written, signed contract.*fn28 Although the parties had almost reached an agreement by the end of June 2001, ultimately PCS and Nitrochem could not agree on contract language acceptable to both parties.*fn29 In particular, they disputed the content of the force majeure and complete agreement clauses.*fn30 By the end of June, active negotiations between the parties for the 2001 contract had essentially ceased.*fn31 Consequently, when the parties met in Chicago on September 11, 2001, the focus of their discussions had shifted from the 2001 contract negotiations to PCS's 2002 requirements.*fn32 It was during this meeting that PCS's representatives, Rock and Dowdle, informed Nitrochem's agents that their needs for 2002 would be reduced from prior years — at most, PCS would require eight firm and eight optional cargoes of ammonia.*fn33 Rather than argue that such a reduction was prohibited under the "terms" of their agreement, Nitrochem's representatives looked for alternative purchasers for Nitrochem's ammonia.*fn34

  After the meeting, the relationship between the parties slowly deteriorated. In October 2001, Alleyne and Spirytus exchanged revised drafts of the 2001 contract, but Rock, objecting to the automatic renewal clause, would not sign the draft and negotiations stalled again.*fn35 On November, 19, 2001, Rock informed Spirytus that although PCS wanted to purchase ammonia from Nitrochem in 2002, it could not do so on a contractual basis.*fn36 Nitrochem did not inform PCS that its reduction to zero contract tons was barred by the notice provision in the 2001 contract drafts.*fn37 One week later, Nitrochem resurrected the March 28, 2001 contract from its files, countersigned it, and mailed it to PCS.*fn38

  In 2002, PCS purchased approximately two shiploads of ammonia from Nitrochem, as spot purchases.*fn39 On March 26, 2003, Nitrochem served PCS with a notice of intention to arbitrate. On April 15, 2003, PCS filed its Complaint for declaratory judgment and injunctive relief to stay ...

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