Kaiser Aluminum Warrick, LLC v. US Magnesium LLC

Background

Kaiser Aluminum Warrick, LLC sued US Magnesium, LLC for breach of a Magnesium Supply Agreement. Under that agreement, US Magnesium was to supply specified quantities of magnesium at fixed prices from December 2020 through December 2022 and maintain a 60-day safety stock for Kaiser. On September 29, 2021, US Magnesium declared a contract-based force majeure, citing catastrophic equipment failures at its plant. It then delivered reduced quantities, and Kaiser bought replacement magnesium on the open market at prices higher than the contract prices.

Kaiser sought compensatory damages and lost profits. Kaiser also renegotiated provisions in its own customer contracts to account for increased magnesium prices, including a backward-looking reconciliation. The parties disputed whether Kaiser’s customers provided meaningful consideration for those changes. The parties agreed that the validity of US Magnesium’s force majeure declaration presented a disputed factual question for the factfinder.

After discovery, both sides moved for partial summary judgment. Kaiser asked the court to strike US Magnesium’s “pass-on” defense, which argued that any additional costs Kaiser passed to its customers should be deducted from Kaiser’s damages. US Magnesium asked the court to strike Kaiser’s lost-profit claim and to exclude the report of Kaiser’s lost-profits expert, Craig Casey.

Pass-on defense

The court granted Kaiser’s motion for summary judgment striking the pass-on defense. Applying New York law and the Uniform Commercial Code, the court explained that a buyer may recover the difference between the cost of replacement goods and the contract price, along with appropriate additional damages, reduced by expenses saved because of the breach. New York’s highest court, however, has held that increased amounts passed to a buyer’s customers are not expenses saved because of the breach.

The court relied on that precedent and related New York decisions requiring damages to be measured based on the breach rather than later events. It also noted that Kaiser’s customers were not in contractual privity with US Magnesium and therefore could not sue US Magnesium directly for breach of the supply agreement. Allowing the defense, the court reasoned, could allow US Magnesium to breach its contract without being held accountable. The court did not need to decide Kaiser’s separate argument concerning the collateral-source rule.

Lost-profit damages

The court denied US Magnesium’s motion for summary judgment striking Kaiser’s lost-profit claim. The contract stated that US Magnesium would not be liable for incidental or consequential damages, but the court had previously found that provision ambiguous. After discovery, the parties identified no material outside evidence showing what the provision meant, so the court treated its interpretation as a legal question.

The court construed the limitation strictly because contractual limits on liability must be clear and unambiguous under New York law. Reading the damages sentence in the context of the entire provision, the court concluded that the limitation addressed liability involving materials purchased and shipped under the agreement. The more persuasive interpretation therefore allowed consequential damages, including lost profits, where the contracted-for material was never shipped. The court rejected US Magnesium’s argument that this interpretation made other contract provisions unnecessary.

Expert testimony

The court also denied US Magnesium’s motion to exclude Casey’s lost-profit report under Federal Rules of Evidence 403 and 702. Rule 702 requires expert testimony to rest on sufficient facts or data and reliable methods reliably applied. Rule 403 permits exclusion when the danger of unfair prejudice, confusion, or misleading the jury substantially outweighs the evidence’s value.

The court found that Casey explained his method: comparing Kaiser’s forecasted sales with its actual sales during the relevant period. The forecasts incorporated actual prior-month sales, current and near-term customer orders, and projections for later months. Casey also adjusted the analysis for historical forecasting variation and considered other possible causes of lost profits, including a general decline in the aluminum market during one quarter. The court found the report sufficiently reliable and not substantially likely to confuse or mislead the jury. US Magnesium could challenge the report through cross-examination and contrary evidence.

Disposition

The court granted Kaiser’s motion for partial summary judgment and denied US Magnesium’s motion for partial summary judgment. Specifically, the court struck US Magnesium’s pass-on defense, denied its request to strike Kaiser’s lost-profit claim, and denied its request to exclude Kaiser’s expert report. The court did not resolve the disputed factual issue concerning the validity of US Magnesium’s force majeure declaration.