Norfolk Southern may have to pay back millions in fines to coal carrier

Written by RT&S Staff
Norfolk Southern
Norfolk Southern is refusing to share the O Line in North Carolina for a new passenger rail route.
Norfolk Southern

Norfolk Southern Railway calls its situation with Drummond Coal Co. a case of buyer’s remorse. In federal court this week, the Class 1 railroad company might be the one having second thoughts.

A jury found in favor of Drummond Coal Co., which has paid millions in fines and penalties to Norfolk Southern linked to a contract over transporting coal to power plants. The jury agreed there was a material breech in the contract, and now must decide if Norfolk Southern will have to pay $35 million in penalties back to Drummond Coal Co.

The contract involved Drummond Coal Co. moving coal from a Charleston, S.C., terminal to 23 coal-burning power plants in the Southeast. There were guaranteed minimum volumes in the agreement, and Drummond was on the hook for fees if it did not deliver.

Since the contract kicked in, 13 of the plants have been closed by the Environmental Protection Agency and the demand for coal has dropped significantly. Drummond has not made a shipment of coal under the Norfolk Southern contract since 2011.

Drummond has paid Norfolk Southern $35 million in fees, and owes another $40 million more.

Drummond sued Norfolk Southern in 2016 claiming the freight railroad outfit entered into confidential third-party contracts with the power plants. The backdoor agreement restricted the power plants from taking coal from Drummond.

Norfolk Southern claims this is a case of buyer’s remorse, and that Drummond knew the risks and market conditions when it agreed to the terms of the contract.

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