AMG Vanadium LLC v. Glob. Advanced Metals U.S.A., Inc.

AMG VANADIUM LLC, Plaintiff, v. GLOBAL ADVANCED METALS U.S.A., INC., Defendant.

GLOBAL ADVANCED METALS U.S.A., INC., Counterclaim Plaintiff, v. AMG VANADIUM LLC and AMG ADVANCED METALLURGICAL GROUP N.V. and AMG MINERAÇÃO S.A., Counterclaim Defendants.

C.A. No. N17C-03-1637 MMJ [CCLD]

SUPERIOR COURT OF THE STATE OF DELAWARE

Submitted: December 18, 2019

February 6, 2020

FILED UNDER SEAL

On Plaintiff and Counterclaim Defendants' Motion for Summary Judgment AND Defendant and Counterclaim Plaintiff's Motion for Summary Judgment.

OPINION

David Dunn, Esq., (Argued) Ryan M. Philp, Esq. (Argued), Hogan Lovells US LLP, New York, New York, Henry E. Gallagher, Jr., Esq., Ryan P. Newell, Esq., Shaun Michael Kelly, Esq., Connolly Gallagher LLP, Wilmington, Delaware, Attorneys for Plaintiff and Counterclaim Defendant AMG Vanadium LLC, and Counterclaim Defendants AMG Advanced Metallurgical Group N.V. and AMG Minerção S.A.

James R. Carroll, Esq. (Argued), Peter Simshauer, Esq., Marley Ann Brumme, Esq., Skadden, Arps, Slate, Meagher & Flom LLP, Boston, Massachusetts, Joseph O. Larkin, Esq., Skadden, Arps, Slate, Meagher & Flom LLP, Wilmington, Delaware, Attorneys for Defendant and Counterclaim Plaintiff Global Advanced Metals U.S.A., Inc.

JOHNSTON, J.

FACTUAL AND PROCEDURAL CONTEXT

Parties

This action arises from an output contract governing the relationship between a supplier and buyer of tantalum pentoxide from a mine in Brazil. Defendant and Counterclaim Plaintiff Global Advanced Metals U.S.A., Inc. ("GAM") is a Delaware corporation. Plaintiff and Counterclaim Defendant AMG Vanadium LLC ("AMG Vanadium") is a Delaware limited liability company. Counterclaim Defendant Advanced Metallurgical Group, N.V. ("AMG NV") is a Netherlands company that conducts business in the State of Delaware, directly or indirectly, including through its affiliates AMG Vanadium and Metallurg, Inc. AMG Vanadium and AMG NV are collectively referred to herein as "AMG."

Tantalum

Tantalum is a metal used in various applications, including vital components in consumer electronic devices.¹ Tantalum is a transition metal used in the electrical, aerospace, automotive, chemical manufacturing, and other industries.² Tantalum is a relatively scarce resource.³ Many tantalum deposits are located in parts of the world where it is considered a "conflict" mineral because proceeds from mining tantalum have been used to fund civil war, gross human rights abuses, and political violence.⁴ Thus, ethical sourcing of tantalum is a priority in the tantalum industry.⁵ It is paramount that a purchaser of tantalum know the source of that material.⁶

AMG produces tantalum concentrate from its Mibra Mine in Brazil ("Mibra Mine").⁷ The Mibra Mine has one of the largest global reserves of tantalum.⁸ AMG's principal business involves extracting tantalum ore concentrate from the Mibra Mine.⁹

GAM processes tantalum to manufacture capacitor powders and metallurgical products.¹⁰ Under industry and Non-Governmental Organization initiatives, tantalum processors and smelters like GAM must conduct due diligence on any tantalum ores and concentrates it sources to ensure that these raw materials are conflict-free and in all other respects ethically sourced.¹¹

GAM requires that its tantalum supply comply with rigorous ethical sourcing requirements, including the Foreign Corrupt Practices Act and other anti-corruption laws; customs and export control requirements; various labor provisions; and various shipping requirements, including the International Maritime Dangerous Goods Code regarding Class 7 radioactive materials, which requires extensive documentation.¹² GAM's due diligence involves a mine-to-smelter chain of custody assessment that requires the smelter know precisely where and by whom its tantalum was mined, sold, and shipped.¹³

GAM and AMG Enter into a Supply Agreement

In 2012, GAM entered into discussions with CIF Mineração S.A. ("CIF Mineração") concerning the supply of tantalum from the Mibra Mine. GAM sought to obtain consistent and reliable deliveries of tantalum in order to satisfy its commercial needs.¹⁴ At the time, CIF Mineração was in negotiations to renew its agreement with its longtime customer, a major competitor to GAM.¹⁵

In October of 2012, CIF Mineração (succeeded by AMG Mineração, then by AMG Vanadium),¹⁶ as "Seller," GAM, as "Buyer," and AMG NV, as "Guarantor" of Seller's payment obligations and certain performance obligations,¹⁷ entered into a Supply Agreement ("Supply Agreement"). GAM agreed to purchase, and AMG to sell a consistent and reliable supply of tantalum exclusively from the Mibra Mine.¹⁸

GAM asserts that, in entering the Supply Agreement, it relied on AMG's assurance of its ability—to provide a steady and consistent supply of Mibra Mine-sourced tantalum—as central and essential to the agreement.¹⁹ AMG asserts that, based on GAM's written agreement to purchase the Mibra Mine output of tantalum concentrate, AMG Mineração terminated its relationship with a prior customer and expended substantial capital to modify its mine to accommodate GAM's needs.²⁰

The Supply Agreement is a multi-year contract by which GAM agreed to purchase tantalum pentoxide²¹ concentrate ("Product") that meets specifications set forth in Schedule 1 to the Supply Agreement. The Supply Agreement required AMG to provide ethically-sourced Product as defined by regulatory and industry standards.²²

When the parties initially discussed a potential supply agreement, GAM sought stability in the price for tantalum concentrate.²³ AMG alleges that the price was then rising to GAM's disadvantage. AMG committed to provide GAM with tantalum from the Mibra Mine, in exchange for GAM's payment of a premium over the then-market price. GAM also received a right of first refusal on any Mibra Mine tantalum in excess of the annual amounts AMG was obliged toprovide. For its part, AMG sought certainty in the price for its Product supply. Thus, the Supply Agreement set a base price for Product.

The Supply Agreement required AMG to supply GAM with "a minimum of [Redacted] ounds" of Product per year ("Base Annual Volume") for five years, total [Redacted] pounds, for a Base Price [Redacted]²⁴

AMG Vanadium agreed to sell to GAM one hundred percent (100%) of the Product from the Mibra Mine.²⁵ As required by contract, GAM is the sole customer for tantalum concentrate produced by AMG Mineração (or AMG Vanadium).²⁶ AMG alleges that it has already shipped approximatel [Redacted] pounds of Product to GAM.²⁷

The Supply Agreement also provided that GAM would make a $20 million Pre-Payment to AMG in order to "support the Mibra Mine business"²⁸ ("Pre-payment").²⁹ AMG used at least a portion of this Pre-Payment to pay down corporate debt. The Supply Agreement stipulated that in consideration of that payment, the invoiced price for Product delivered to GAM would be the Base Price[Redacted] pound credit until the cumulative amount of the credit equaled $20 million.³⁰

The Supply Agreement provided that if AMG breached the Supply Agreement before GAM received the full $20 million credit, GAM would be "entitled to demand an immediate repayment in full from [AMG] of the outstanding amounts of [GAM's] outstanding Pre-Payments."³¹ The Supply Agreement also provided that it was "governed by the laws in force in the State of Delaware USA."³²

GAM and AMG Amend the Supply Agreement

In August 2015, the parties entered into a Third Amendment to the Supply Agreement, which revised the pricing and payment structure for the remaining approximatel [Redacted] pounds of Product to be delivered ("Third Amendment").³³ The Third Amendment provided that, while the Base Price for Product would remain a [Redacted]³⁴ and the total required volume would remain unchanged, AMG would make downward adjustments of the cash price GAM was obligated to pay for future shipments of Product.³⁵

The Third Amendment provided that "[i]n consideration of the adjustment of the Base Price" of Product,³⁶ GAM would immediately confe [Redacted] in value on AMG in three parts.³⁷ GAM paid the [Redacted] in Third Amendment Consideration to AMG ("Third Amendment Consideration").³⁸

Termination of Supply Agreement

On January 18, 2017, a portion of one of the gravimetric separation plants operated by AMG Mineração ("Plant 1") caught fire.³⁹ The damage at the Mibra Mine severely impacted AMG's capacity to supply tantalum to GAM. Based on AMG's statements, the damage from the fire will necessitate the substantial reconstruction of the processing plant responsible for the majority of AMG's output of tantalum pentoxide.⁴⁰

AMG notified GAM of the fire damage. GAM sent AMG a letter dated February 13, 2017 ("February 13 Letter") requesting adequate assurances that AMG would meet its contractual obligations.⁴¹ GAM noted specific information GAM required in order to approve any third-party supplier of tantalum.⁴²

AMG provided a response on March 13, 2017 ("March 13 Letter"). In its March 13 Letter, AMG disclosed to GAM its projected deficiency and its potential plans for a solution.⁴³ AMG proposed sourcing from a third-party supplier that AMG alleged was ethically-sourced and could supply Product that met contractual requirements.⁴⁴ In the March 13 Letter, AMG imposed a March 17, 2017 deadline by which GAM must accept in order to secure that source.⁴⁵ AMG did not provide the identity or location of the third-party supplier.⁴⁶ AMG also offered to supply GAM with tantalum oxide, which GAM previously had accepted in lieu of tantalum pentoxide.⁴⁷

GAM sent a letter "cancelling the Supply Agreement, effective immediately" on March 22, 2017.⁴⁸

On March 28, 2017, AMG filed a Complaint against GAM for breach of contract. On May 8, 2017, GAM filed its Answer and Counterclaims for declaratory judgment, breaches of contract for failure to reimburse the Pre-payment, unjust enrichment, and breach of contract for undershipment of Product. On August 9, 2017, GAM filed its First Amended Counterclaim. On August 21,...