Court Opinion

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Opinions of the United
2008 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

1-9-2008

Norfolk Southern v. Basell USA
Precedential or Non-Precedential: Precedential

Docket No. 06-3425

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Recommended Citation
"Norfolk Southern v. Basell USA" (2008). 2008 Decisions. Paper 1654.
http://digitalcommons.law.villanova.edu/thirdcircuit_2008/1654

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                                       PRECEDENTIAL

  UNITED STATES COURT OF APPEALS
       FOR THE THIRD CIRCUIT
              ________

                 No. 06-3425
                 _________

NORFOLK SOUTHERN RAILWAY COMPANY,
                          Appellant

                       v.

             BASELL USA INC.
                _________

  Appeal from the United States District Court
    for the Eastern District of Pennsylvania
         (D.C. Civil No. 05-cv-03419)
  District Judge: Honorable Berle M. Schiller
                  __________

          Argued September 10, 2007

     Before: SCIRICA, Chief Judge,
  RENDELL and FUENTES, Circuit Judges.

            (Filed: January 9, 2008)
Paul D. Keenan [ARGUED]
Charles L. Howard
Keenan, Cohen & Howard
One Pitcairn Place, Suite 2400
165 Township Line Road
Jenkintown, PA 19046
  Counsel for Appellant
  Norfolk Southern Railway Company

Nicholas J. DiMichael [ARGUED]
Thomson Hine
1920 N Street, NW, Suite 800
Washington, DC 20036-1600

Conrad O. Kattner
John P. McShea, III
McShea & Tecce
Bell Atlantic Tower, 28th Floor
1717 Arch Street
Philadelphia, PA 19103
  Counsel for Appellee
  Basell USA Inc.

                        __________

                OPINION OF THE COURT
                      __________

                             2
RENDELL, Circuit Judge.

       Norfolk Southern Railway Co. (“Norfolk Southern”) and
its customer Basell USA Inc. (“Basell”) agree that Basell
breached a contract that existed between them. They disagree,
however, as to whether the breach was material and whether it
constituted a repudiation — either of which would have entitled
Norfolk Southern to terminate the contract. On cross-summary
judgment motions, the District Court held that Norfolk Southern
did not have the right to terminate the contract, explicitly
concluding that the breach was not material and implicitly ruling
that there had been no repudiation. Norfolk Southern now
appeals both of these aspects of the District Court’s order. The
District Court had jurisdiction pursuant to 28 U.S.C. § 1332 and
we have jurisdiction pursuant to 28 U.S.C. § 1291. We will
vacate the District Court’s summary judgment order in part and
remand for further proceedings consistent with this opinion.

             I. Factual and Procedural History

        Basell manufactures plastic pellets at a production facility
in West Lake Charles, Louisiana, and contracts with others,
including Norfolk Southern, to transport those pellets to
customers throughout the United States. There is no single rail
carrier that can offer freight transport all the way from the West
Lake Charles facility to destinations in the eastern United States.
The BNSF Railway Company (“BNSF”) and the Union Pacific
Railroad (“Union Pacific”) both serve West Lake Charles, but

                                 3
do not serve destinations in the eastern United States.
Conversely, Norfolk Southern and CSX Transportation
Company (“CSX”) both serve destinations in the eastern United
States, but do not serve West Lake Charles. Therefore, all rail
deliveries to the eastern United States are by joint-line service,
involving both an origin carrier and a destination carrier —
either BNSF or Union Pacific transports the pellets from the
West Lake Charles facility to a rail “interchange,” where it
hands off the railcars to either Norfolk Southern or CSX for the
second leg of the trip.

       This pellet-transport traffic divides into three categories:

       •      “Competitive rail direct”: both Norfolk Southern
              and CSX are capable of transporting the pellets
              all the way from the rail interchange to the end
              customer by rail.

       •      “Captive rail direct”: only Norfolk Southern or
              CSX is capable of transporting the pellets all the
              way from the rail interchange to the end customer
              by rail.

       •      “Truck terminal”: the end customer either must
              receive, or prefers to receive, the pellet delivery
              by truck instead of by rail; either Norfolk
              Southern or CSX transports the pellets from the
              rail interchange to a terminal, where it then

                                4
                 transfers them to trucks for final delivery.

        Norfolk Southern and Basell entered into a contract in
early 2002 under which Norfolk Southern promised to charge
Basell a rate below the published tariff rate in exchange for
Basell’s using Norfolk Southern for 95% of certain deliveries
originating in West Lake Charles from February 2002 through
May 2007.1 According to Basell, the minimum volume
commitment was 95% of the aggregate deliveries — competitive
rail direct, captive rail direct, and truck terminal — that Norfolk
Southern was capable of making, excluding any truck deliveries
where the end customer was more than 100 miles from the
nearest Norfolk Southern truck-transfer terminal. According to
Norfolk Southern, the minimum volume commitment was 95%
of the aggregate competitive and captive rail direct deliveries
that it was capable of making, and also 95% of the truck
deliveries where the end customer was less than 100 miles from
the nearest Norfolk Southern truck-transfer terminal.2

         Basell fulfilled its minimum volume commitment in

 1
   Although the parties disagree slightly as to the type of traffic
that was to be included in the formula, the discrepancy does not
have a significant effect on our analysis because they agree that
rail direct was included and the vast majority of the West Lake
Charles traffic was rail direct.
  2
      There is no final written contract.

                                  5
2002, 2003, and 2004. However, it fell short in 2005 when it
entered into a contract obligating it to use CSX for shipments
originating in West Lake Charles. Basell’s expert calculated
that in 2005 Basell used Norfolk Southern to deliver 80% of the
traffic covered by their contract, instead of the promised 95%.
The 15% shortfall consisted entirely of rail direct traffic —
captive and competitive — and not a single truck terminal
delivery.

       Norfolk Southern does not dispute the 80% figure, but
emphasizes that, in breaching the contract, Basell provided it
with only 55% of the competitive rail direct traffic, and that this
number is the proper focus for determining the magnitude of the
breach. Norfolk Southern urges that it agreed to charge Basell
discounted rates across the board — including for captive traffic
— in order to secure the competitive traffic originating in West
Lake Charles, for which Basell could have chosen to use either
Norfolk Southern or CSX. Since Basell would have received
the captive traffic even without the contract, it maintains that the
diverted competitive traffic is what is most relevant in
evaluating the breach.

        Basell entered into a two-year contract with CSX
beginning in February 2005. It is undisputed that compliance
with its contractual obligations to CSX caused its failure to meet
its minimum volume commitment to Norfolk Southern.
Although the details of Basell’s contract with CSX are not

                                 6
clearly set forth in the record before us,3 the parties agree that
Basell promised to use CSX as the destination carrier for 95%
of a pool of deliveries that overlapped somewhat with the pool
of West Lake Charles deliveries covered by Basell’s contract
with Norfolk Southern. In order to fulfill its minimum volume
commitment to CSX, Basell diverted to CSX competitive rail
direct traffic for which it was already contractually bound to use
Norfolk Southern.

       The procedural history of the case as it progressed in the
District Court is somewhat complex, with a variety of claims
and counterclaims asserted along the way. Originally, Norfolk
Southern sued for (1) a declaratory judgment that Basell should
have been paying the tariff rate for all transport services that
Norfolk Southern had provided it since June 2002, which
included deliveries originating in West Lake Charles and three
other Basell pellet-production facilities, and (2) money damages
for Basell’s failure to pay the tariff rate. Norfolk Southern then
amended its complaint to add a claim for breach of contract.
Basell filed counterclaims for a declaratory judgment in its
favor, quantum meruit, unfair competition, and tortious
interference with existing and prospective contractual relations.
It appears from the record that it was not until roughly two
months before the bench trial that Norfolk Southern learned of

  3
   We do not have a final written contract between Basell and
CSX, just as we have no final written contract between Basell
and Norfolk Southern.

                                7
Basell’s contract with CSX, during the deposition of Samuel
Slovak, a Basell employee responsible for transportation
procurement. Less than one month before trial, in a stipulation
filed with the District Court, Norfolk Southern withdrew its
original two counts and Basell withdrew its quantum meruit
counterclaim. Less than one week before trial, Norfolk
Southern notified the Court and Basell for the first time of two
key changes in its litigation strategy: first, it was no longer
pursuing any claim related to pellet-production facilities other
than West Lake Charles and, second, it was now asserting that
Basell’s breach of the parties’ West Lake Charles contract was
material and that, therefore, Norfolk Southern could treat that
contract as terminated. However, with the parties in agreement
that there was a West Lake Charles contract and that Basell had
breached it, the District Court did not concern itself with the
state of the pleadings and ordered cross-summary judgment
motions.

       The issues before the District Court on summary
judgment centered on whether Norfolk Southern should be
permitted to terminate the contract and, if not, whether the
proper remedy for the breach was lost profits or liquidated
damages. Norfolk Southern argued that contract termination
was appropriate because Basell materially breached and/or
repudiated its contract with Norfolk Southern by entering into
the February 2005 contract with CSX. This was the first time

                               8
that Norfolk Southern raised the issue of repudiation.4

       The District Court concluded that Basell’s breach was not
material and that, therefore, Norfolk Southern could not
terminate its contract with Basell; it did not address Norfolk
Southern’s repudiation argument.         However, the Court
determined that there was an immaterial breach and that the
appropriate remedy was measured by lost profits. It awarded
Norfolk Southern $270,430 for lost profits incurred through
June 2006, which was the estimate of lost profits that Basell had
submitted to the Court as part of its motion for summary
judgment; Norfolk Southern’s estimate had been $258,080. The
Court found the estimates to be “strikingly similar” and chose
the higher of the two, without explanation. Norfolk S. Ry. Co.
v. Basell USA, Inc., No. 05-3419, 2006 WL 1892726, at *5
(E.D. Pa. July 10, 2006). 5 The Court also ordered that Basell
would be liable for any additional lost profits incurred by
Norfolk Southern during the remaining eleven months of the
contract as a result of any ongoing breach of the minimum
volume commitment.

   4
     The issue of Norfolk Southern’s potential waiver of its
contract termination, material breach, and repudiation theories
by failing to plead them has not been raised on appeal.
       5
       Neither party is challenging the District Court’s
determination that $270,430 was the proper measure of Norfolk
Southern’s lost profits through the end of June 2006.

                               9
        Norfolk Southern continues to seek a ruling that it is
entitled to terminate the contract because Basell’s breach was
material, or, alternatively, because Basell’s conduct amounted
to a repudiation. Norfolk Southern urges that under either
scenario it would then be entitled to recover — as restitution —
the difference between the tariff rate and the discounted rate for
all deliveries originating in West Lake Charles that it made for
Basell after Basell entered into its conflicting contract with
CSX.

                          II. Analysis

        Our review of the District Court’s grant or denial of
summary judgment is plenary, and we apply the same standard
that the District Court applied in determining whether summary
judgment was appropriate. Abramson v. William Paterson Coll.
of N.J., 260 F.3d 265, 276 (3d Cir. 2001). Summary judgment
should be granted only “if the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment
as a matter of law.” Fed. R. Civ. P. 56(c). In making this
determination, we “must view the facts in the light most
favorable to the nonmoving party and draw all inferences in that
party's favor.” Abramson, 260 F.3d at 276 (internal quotation
marks omitted). Thus, if a reasonable fact finder could find in
the nonmovant’s favor, then summary judgment may not be
granted. Congregation Kol Ami v. Abington Twp., 309 F.3d
10
120, 130 (3d Cir. 2002). Moreover, it is important to remember
that, “[w]hile the individual pieces of evidence alone may not
suffice to make out the claims asserted, we must view the record
as a whole picture.” Abramson, 260 F.3d at 276.

        As a federal court sitting in diversity, we “are required to
apply the substantive law of the state whose laws govern the
action,” Robertson v. Allied Signal, 914 F.2d 360, 378 (3d Cir.
1990); here, we apply the law of Delaware.6 Therefore, our
task is to predict how the Delaware Supreme Court would rule
if it were deciding this case. Koppers Co., Inc. v. Aetna Cas. &
Sur. Co., 98 F.3d 1440, 1445 (3d Cir. 1996). Ideally, we would
accomplish this task by simply applying the Delaware Supreme
Court’s precedents that are on point. Id. But, “[i]n the absence
of guidance from the state's highest court, we must look to
decisions of state intermediate appellate courts, of federal courts
interpreting that state's law, and of other state supreme courts
that have addressed the issue,” as well as to “analogous
decisions, considered dicta, scholarly works, and any other
reliable data tending convincingly to show how the highest court
in the state would decide the issue at hand.” Id. (internal
quotation marks omitted).

                      A. Material Breach

  6
     The District Court found that Delaware law governs this
action, Norfolk S. Ry. Co. v. Basell, 2006 WL 1892726, at *3
n.4, and neither party now disputes this determination.

                                11
        For a breach to be material, it must “go[] to the essence
of the contract.” Gen. Motors Corp. v. New A.C. Chevrolet,
Inc., 263 F.3d 296, 315 (3d Cir. 2001); it must be “of sufficient
importance to justify non-performance by the non-breaching
party,” Biolife Solutions, Inc. v. Endocare, Inc., 838 A.2d 268,
278 (Del. Ch. 2003) (internal quotation marks omitted). The
Delaware Supreme Court has not addressed the issue, but other
Delaware courts have consistently looked to the Restatement
(Second) of Contracts to guide their material breach
determinations. See, e.g., Biolife Solutions, 838 A.2d 268;
Commonwealth Constr. Co. v. Cornerstone Fellowship Baptist
Church, Inc., No. 04L-10-101, 2006 WL 2567916, at *19 (Del.
Super. Aug. 31, 2006); SLMSoft.com, Inc. v. Cross Country
Bank, No. 00C-09-163, 2003 WL 1769770, at *13 (Del. Super.
Apr. 2, 2003); E. Elec. & Heating, Inc. v. Pike Creek Prof’l Ctr.,
1987 WL 9610, at *4-5 (Del. Super. Apr. 7, 1987). According
to the Restatement, the following five factors are significant in
evaluating whether a particular breach of contract is material
and termination is thus warranted:

       (a) the extent to which the injured party will be
       deprived of the benefit which he reasonably
       expected;

       (b) the extent to which the injured party can be
       adequately compensated for the part of that
       benefit of which he will be deprived;

                               12
       (c) the extent to which the party failing to perform
       or to offer to perform will suffer forfeiture;

       (d) the likelihood that the party failing to perform
       or to offer to perform will cure his failure, taking
       account of all the circumstances including any
       reasonable assurances;

       (e) the extent to which the behavior of the party
       failing to perform or to offer to perform comports
       with standards of good faith and fair dealing.

Restatement (Second) of Contracts § 241 (1981). These
materiality factors are “to be applied in the light of the facts of
each case in such a way as to further the purpose of securing for
each party his expectation of an exchange of performances.” Id.
§ 241 cmt a. No single factor is dispositive.

       Whether the breach of a contract is material is generally
an issue of fact. Saienni v. G & C Capital Group, Inc., No.
96C-07-151, 1997 WL 363919, at *3 (Del. Super. May 1, 1997);
23 Richard A. Lord, Williston on Contracts § 63:3 (4th ed.
1992). However, “[a]s is true of virtually any factual question,
if the materiality question in a given case admits of only one
reasonable answer (because the evidence on the point is either
undisputed or sufficiently lopsided), then the court must
intervene and address what is ordinarily a factual question as a
question of law.” Gibson v. City of Cranston, 37 F.3d 731, 736

                                13
(1st Cir. 1994); accord Saienni, 1997 WL 363919, at *3; 23
Williston on Contracts, supra, § 63:3. Thus, in certain
situations, it can be appropriate to determine the issue of
material breach at the summary judgment stage.7

        The District Court correctly identified the Restatement
factors, but, we conclude, erred in concluding that “no
reasonable fact finder could find that Basell’s breach of its
volume commitment is a material breach.” Norfolk S. Ry. Co.
v. Basell USA, Inc., No. 05-3419, 2006 WL 1892726, at *4
(E.D. Pa. July 10, 2006). It focused almost exclusively on the
second factor, and failed to consider adequately whether and
how each of the five factors could be viewed by a reasonable
fact finder as supporting Norfolk Southern’s material breach
argument. Evaluating each factor and the record as a whole in
the light most favorable to Norfolk Southern, we conclude that

   7
      We do not believe that the Delaware Superior Court’s
decision in SLMSoft.com, Inc., 2003 WL 1769770, is to the
contrary. There, the court found that determining whether a
material breach had occurred “clearly involve[d] issues of
material fact, thus making summary judgment inappropriate.”
Id. at *13. We do not read this to mean that the issue of material
breach can never be decided as a matter of law, no matter how
lopsided or undisputed the record may be. Rather, we
understand the court’s statement to mean that the particular case
before it did not present such a situation, as the material facts
remained in dispute.

                               14
the District Court erred in ruling on summary judgment that
Basell’s breach of the West Lake Charles contract was not
material.

        Before applying the first Restatement factor, which
focuses on the deprivation of the “benefit” bargained for, it is
helpful to consider how both the customer and the supplier
benefit from a requirements contract like the one between Basell
and Norfolk Southern. The customer “gets the assurance of a
source of supply” for a particular good or service, perhaps for a
fixed price, without having to commit ahead of time to
purchasing a fixed quantity of that good or service. 2 Joseph M.
Perillo & Helen Hadjiyannakis Bender, Corbin on Contracts §
6.5 (Rev. Ed. 1995). The supplier benefits, even though the
actual amount of business that it will receive under the contract
is uncertain, because it “locks in a customer” for a set
percentage (if not all) of whatever quantity the customer ends up
requiring. Id. Here, the percentage was 95% of Basell’s
shipments.

         Regarding the first factor, the District Court found that,
“[a]long with three years of full performance, the fact that
Basell's shortfall is only 15% underscores the limited extent to
which Norfolk Southern has been deprived of the benefit it
reasonably expected from the contract.” Norfolk S. Ry. Co.,
2006 WL 1892726, at *4. However, Norfolk Southern argues
that it bargained for nearly all the shipments — 95% — and that
it would not have agreed to give Basell a discounted rate, below

                                15
the published tariff rate, if not for the minimum volume
commitment. It reasonably expected 95% in exchange for the
guaranteed discounted delivery services and, it urges, 80%, quite
simply, is not 95%. Moreover, Norfolk Southern contends, the
80% figure is deceptive because the majority of that 80%
consists of captive rail direct traffic that Basell had no choice
but to provide to Norfolk Southern. It maintains that it
discounted its rates for all of Basell's traffic, including the
captive rail direct traffic, so as to capture the competitive traffic.
According to Norfolk Southern, it reasonably expected that the
agreement for 95% of all traffic meant that it would receive the
vast majority of the competitive rail direct traffic originating
from the West Lake Charles facility, whereas, due to Basell's
breach, it only received 55% of it. Further, while Basell had
fully performed for three years before its breach, over two years
remained on the contract once the shortfall began; Basell made
no indication that it would again fulfill its minimum volume
commitment. A reasonable fact finder could credit these
arguments and find that Norfolk Southern was substantially
deprived of the benefit that it had reasonably expected when
entering into the West Lake Charles contract, such that the first
Restatement factor supports a material breach determination.

       The Restatement explains that the second factor — the
extent to which the non-breaching party can be adequately
compensated for the loss of benefit — “is a corollary of the
first” and that “[d]ifficulty . . . in proving with sufficient
certainty the amount of that loss will affect the adequacy of

                                 16
compensation.” Restatement (Second) of Contracts § 241 cmt
c. The District Court found this factor to be the most significant
and determined that “Norfolk can be adequately compensated
for Basell's breach because Norfolk's present damages are
readily calculable.” Norfolk S. Ry. Co., 2006 WL 1892726, at
*4. A reasonable fact finder could come to the opposite
conclusion. First, Basell and Norfolk Southern submitted to the
Court differing present-damage estimates — $270,430 and
$258,080, respectively. It is true that only about $12,000
separated these estimates, but a $12,000 difference is not too
small to indicate a lack of certainty regarding the calculations.
Second, there was a strong likelihood of future lost profits
during the remaining eleven months of the contract — due to
Basell's conflicting contractual obligations to CSX — and
inherent uncertainty regarding precisely how large those
additional damages would be. The District Court did address
this issue in its order, stating that Basell would be liable for any
lost profits caused by any further failure to meet its minimum
volume commitment to Norfolk Southern. A reasonable fact
finder, however, could find that an order granting a yet-to-be-
determined amount of damages raised, rather than resolved,
concerns regarding the present ease of calculating damages.

       The third factor is the extent to which the breaching party
will suffer forfeiture if the non-breaching party is permitted not
to perform. In elucidating this factor, the Restatement explains
that there is a risk of forfeiture when the breaching party “has
relied substantially on the expectation of the exchange, as

                                17
through preparation or performance.” Restatement (Second) of
Contracts § 241 cmt d. Therefore, as the District Court noted in
its brief apparent reference to forfeiture, a breach is “less likely
to be regarded as material if it occurs late, after substantial
preparation or performance.” Id.; see Norfolk S. Ry. Co., 2006
WL 1892726, at *4. Basell argues that it would suffer
considerable forfeiture if Norfolk Southern is absolved from
performing and is allowed to charge the published tariff rate for
deliveries made under the contract. Basell maintains that, if not
for the promised discounted rate, it would not have chosen to
use Norfolk Southern for any of its competitive West Lake
Charles traffic. Thus, the argument goes, permitting Norfolk
Southern to eliminate the discount retroactively would result in
a windfall for Norfolk Southern and forfeiture for Basell.
Moreover, Basell performed fully for three years, and relied on
Norfolk Southern’s performance by marketing its plastic
products based on the agreed-upon transportation costs. On the
other hand, it could be argued that three years into a five-year
contract is not all that “late.” Furthermore, the District Court
did not address the cause of the “forfeiture” — namely, Basell’s
own undertaking of a conflicting obligation. We believe
consideration should have been given to the fact that any
resulting forfeiture would have been of Basell’s own making.
See Glus v. Brooklyn Eastern Dist. Terminal, 359 U.S. 231, 232-
33 (1959) (explaining that “the maxim that no man may take
advantage of his own wrong” is “[d]eeply rooted in our
jurisprudence [and] has been applied in many diverse classes of
cases by both law and equity courts”); 13 Williston on

                                18
Contracts, supra, § 39:6 (noting “the long-established principle
of law that one should not be able to take advantage of his or her
own wrongful act”).

         As for the fourth factor — the likelihood of cure by the
breaching party — the District Court emphasized that “although
Basell does not promise that it will not breach the contract going
forward, Basell states that ‘it is not a foregone conclusion that
Basell will not meet the minimum volume commitment in 2006’
and ‘[t]here could very well be no shortfall in 2007.’” Norfolk
S. Ry. Co., 2006 WL 1892726, at *4 (alteration in original).
Even if Basell’s statements were correct (and they indeed might
have been), the fourth materiality factor asks whether it is likely
that the breaching party will perform its contractual duties going
forward, not merely whether such performance is theoretically
possible. Here, Basell’s contract with CSX — the very contract
that had caused the shortfall in the first place — remained in
effect until the end of January 2007. Basell gave no assurance
that it would fulfill its minimum volume commitment to Norfolk
Southern going forward — either before or after the CSX
contract expired. Thus, a reasonable fact finder could find that
the likelihood of cure was low and that this fourth Restatement
factor points toward materiality.

        The District Court referred to the fifth and final factor —
that is, the extent to which the breaching party’s behavior
comported with standards of good faith and fair dealing — only
briefly, stating that “the Court does not accept Norfolk's

                                19
characterization of the breach, namely that Basell's business
decision, driven by operational needs, amounted to a spiteful
‘slap in the face’ to Norfolk.” Norfolk S. Ry. Co., 2006 WL
1892726, at *4. The Court seems to credit Basell’s argument
that it had breached its contract with Norfolk Southern due to
operational efficiency requirements and that this explanation for
its conduct should preclude a bad faith finding. We view this as
a problematic conclusion to reach on summary judgment for a
number of reasons. First, the record support for Basell’s
argument is very weak. Slovak, Basell’s transportation-
procurement manager, testified that Basell shifted truck terminal
traffic to CSX due to “operational” needs. This testimony is
arguably irrelevant because, according to Basell’s own
calculations, truck terminal traffic did not account for any of its
shortfall in reaching its minimum volume commitment to
Norfolk Southern. Second, a reasonable fact finder could find
that, despite any operational needs that Basel may have had,
entering into a contract with CSX that required the diversion of
traffic that it had already contractually promised to Norfolk
Southern was inconsistent with standards of good faith and fair
dealing.

       Taking all of the factors together, we find that, on
balance, they tilt instead in Norfolk Southern’s favor when
viewed through the pro-Norfolk Southern lens of summary
judgment. Therefore, a reasonable fact finder could conclude
that, under the Restatement factors, the breach was material.
The District Court thus erred in deciding on summary judgment

                                20
that Basell did not materially breach its contract with Norfolk
Southern.

        We wish to make clear, however, that we do not hold that
the District Court instead should have found on summary
judgment that the breach was material. Just as a reasonable fact
finder could conclude that the breach was material, a reasonable
fact finder could conclude — as the District Court did — that
the breach was not material. Reasonable minds could differ and
summary judgment is, therefore, not the appropriate way to
resolve the issues presented in this case.

        In addition, we note that, although it is not impossible,
determining whether a breach is material on summary judgment
is inherently problematic where, as here, the materiality analysis
may well turn on subjective assessments as to the state of mind
of the respective parties. As we have emphasized in the past,
“a court should be reluctant to grant a motion for summary
judgment when resolution of the dispositive issue requires a
determination of state of mind, for in such cases much depends
upon the credibility of witnesses testifying as to their own states
of mind, and assessing credibility is a delicate matter best left to
the fact finder.” Metzger v. Osbeck, 841 F.2d 518, 521 (3d Cir.
1988) (internal quotation marks omitted). Here, the issue of the
materiality of a breach under the Restatement’s analytical
framework presents such a situation, as the analysis depends
greatly on an evaluation of why the parties chose to act as they
did. Under the first Restatement factor, the court must

                                21
determine what Norfolk Southern subjectively expected to get
out of the contract, before it decides whether those expectations
were reasonable. Conversely, the fifth factor calls for an
evaluation of what motivated Basell’s conduct — specifically,
whether it committed the breach in good faith or in bad faith. In
addition, the fourth factor entails an assessment of whether
Basell intends to perform its contractual obligations in the
future, and, if the answer is yes, whether it can be trusted to do
so. The determination of “materiality” in a factual setting such
as this is best made after trial.

                        B. Repudiation

        As we noted above, Norfolk Southern sought an
alternative holding from the District Court that Basell’s conduct
amounted to a repudiation, and that it could, therefore, terminate
the contract and recover the full tariff rate for all deliveries
originating in West Lake Charles made after Basell entered into
its contract with CSX.

       The Restatement defines a repudiation as

       (a) a statement by the obligor to the obligee
       indicating that the obligor will commit a breach
       that would of itself give the obligee a claim for
       damages for total breach under §243, or

                               22
       (b) a voluntary affirmative act which renders the
       obligor unable or apparently unable to perform
       without such a breach.

Restatement (Second) of Contracts § 250. The illustrations
included with this section of the Restatement indicate that
entering into a conflicting contract can satisfy the second prong
of the definition. Id. illus. 1, 5 (“On April 1, A contracts to sell
and B to buy land, delivery of the deed and payment of the price
to be on July 30 . . . , A says nothing to B on May 1, but on that
date he contracts to sell the land to C. A’s making of the
contract with C is a repudiation.”) Like material breach,
repudiation by one party to a contract entitles the other party to
terminate that contract. Id. § 253.

       The Delaware Supreme Court endorsed the first prong of
the Restatement’s definition in a case where one party’s
statement allegedly constituted a repudiation. CitiSteel USA,
Inc. v. Connell Ltd. P’ship, 758 A.2d 928, 931 n.7. The
Delaware Court of Chancery endorsed the second prong in a
case where one party’s conduct allegedly constituted a
repudiation, Univ. Realty Assocs., Inc. v. Wendy’s Old
Fashioned Hamburgers of N.Y., Inc., No. 12345, 1992 WL
368593, at * 6 (Del. Ch. Dec. 11, 1992), and we have no reason
to doubt that the Delaware Supreme Court would do the same.

      The District Court did not directly address Norfolk
Southern’s contention that, by entering into the February 2005

                                23
contract with CSX, Basell had repudiated its contract with
Norfolk Southern under the conduct prong of the Restatement’s
definition. At most, the Court alluded to the issue in its
discussion of material breach, when it found that it was not a
“foregone conclusion” that Basell would breach its contract with
Norfolk Southern in 2006. See Norfolk S. Ry. Co., 2006 WL
1892726, at *4. But in ruling that the contract was not
terminable, the Court implicitly rejected Norfolk Southern’s
repudiation argument.

        A district court’s failure to consider an issue below does
not necessarily preclude us from addressing it on appeal.
Hudson United Bank v. LiTenda Mortgage Corp., 142 F.3d 151,
159 (3d Cir. 1998). However, it is only appropriate for us to do
so “when the factual record is developed and the issues provide
purely legal questions, upon which an appellate court exercises
plenary review.” Id. (emphasis added). In situations “where the
resolution of an issue requires the exercise of discretion or fact
finding . . . , it is inappropriate and unwise for an appellate court
to step in.” Id.

       Here, the record is not sufficiently developed for us to
consider the merits of the parties’ arguments as to repudiation.
Norfolk Southern contends that the CSX contract rendered
Basell either “unable or apparently unable” to fulfill its pre-
existing contractual obligations to Norfolk Southern,
maintaining that Basell agreed to use CSX for at least 95% of
the same traffic that had already been promised to Norfolk

                                 24
Southern. Basell counters that its contract with CSX covered
only some of the same traffic as its contract with Norfolk
Southern, and that fulfillment of both was theoretically possible,
depending on the “ebb and flow” of the marketplace. Although
it is undisputed that Basell’s CSX contract ended up causing its
failure to meet its 2005 minimum volume commitment to
Norfolk Southern, the current record does not reveal whether
this was inevitable, or apparent, from the start. It remains
unclear what traffic Basell had promised to CSX, and this
information is crucial for an evaluation of Norfolk Southern’s
repudiation argument. Without knowing with greater specificity
what Basell’s CSX contract required, it is impossible to
determine as a matter of law whether entering into that contract
rendered Basell unable or apparently unable to fulfill its contract
with Norfolk Southern. Norfolk Southern seems to have learned
of the CSX contract only two months before the Court ordered
cross-summary judgment motions, and the record is still too
sparse regarding that contract’s details for us to rule on the
issue. Therefore, we will leave this issue for the District Court
to decide on remand after further factual development.8

 8
   Similarly, we will not address the issue as to whether, and to
what extent, Norfolk Southern would be entitled to restitution if
the District Court finds a material breach or repudiation. We
leave that for the District Court to determine in the first instance.

                                 25
                        III. Conclusion

       For these reasons, we will VACATE the District Court’s
summary judgment order insofar as it concluded, explicitly, that
the breach was not material and, implicitly, that there was no
repudiation.9 We will REMAND for further proceedings
consistent with this opinion.

__________________

  9
    Insofar as the District Court’s award of damages for lost
profits based on an immaterial breach is not challenged on
appeal, that aspect of its ruling is not vacated but would control
should it determine on remand that Basell did not materially
breach or repudiate its contract with Norfolk Southern.

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