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Wahoowa, Inc. v. Consol of Kentucky, LLC

United States District Court, S.D. West Virginia, Charleston

January 26, 2018

WAHOOWA, INC. and SUVAC, INC., Plaintiffs,


          John T. Copenhaver, Jr. United States District Judge.

         Pending before the court is the plaintiffs' motion to remand the case to the Circuit Court of Mingo County, West Virginia, filed on December 7, 2017.

         I. Procedural posture

         This civil action was initiated with the complaint in that circuit court on September 15, 2017. On September 22, 2017, plaintiffs filed their first amended complaint (ECF No. 1-2). The action was removed to this court on November 29, 2017.

         Plaintiffs allege that defendant CONSOL Energy, Inc. (“Consol”) directed and orchestrated an improper assignment to defendant Southeastern Land, LLC (“Southeastern”) of a mining lease (“Wahoowa Lease”) in Harvey District, Mingo County, West Virginia, under which defendant CONSOL of Kentucky, LLC (“COK”), Consol's wholly owned subsidiary, was lessee and the plaintiffs were lessors. First Am. Compl. at ¶¶ 2, 3, 6, 7, 26. According to plaintiffs, the transfer to Southeastern not only violated Section 18(a) of the lease, which governs assignments, but also amounted to a fraudulent transfer under W.Va. Code § 40-1A. Id. at ¶¶ 5, 18, 22-26. In particular, COK did not obtain the plaintiffs' required consent before proceeding with the assignment.

         The assignment was part of a larger transaction for mining tracts in the area embodied in a purchase and sale agreement between several Consol subsidiaries, including COK, and Southeastern. In a filing with the Securities and Exchange Commission, Consol represented that Southeastern had agreed to assume approximately $103 million of specified liabilities, including mine closing and reclamation liabilities, for a number of coal leases transferred by the Consol subsidiaries to Southeastern. Id. at ¶¶ 15-16. In consideration, the Consol subsidiaries were obligated to pay approximately $44 million to Southeastern, of which $27 million was paid in cash at closing. Id. at 16. Consol pointed out that the area no longer fit the Consol portfolio and that its transfer to Southeastern strengthened Consol's balance sheet “because the area generated negative earnings.” Id. at ¶ 17. Plaintiffs allege that this transaction resulted in COK “not receiving a reasonably equivalent value in exchange for its rights and benefits under the [Wahoowa] Lease.” Id. at ¶ 21.

         Upon plaintiffs' information and belief, Consol thus engaged in the asset stripping of COK, such that it is no longer intended to be an operational company but has rather become a “shell.” Id. at ¶¶ 15, 24. While COK gave a guaranty of Southeastern's performance, plaintiffs are concerned about the viability of such guaranty and seek a judgment that would disregard COK's corporate form and obligate Consol as the lessee instead. Id. at ¶¶ 13-15, 24, 26. In addition to requesting a declaratory judgment, id. at ¶ 22, plaintiffs note that the court “may” order the following relief: avoidance of the assignment, an attachment or other provisional remedy, and injunctive or other appropriate relief, id. at ¶ 27.

         Plaintiffs have moved to remand on the ground that as a purported diversity action, it does not meet the $75, 000 amount in controversy requirement necessary for federal jurisdiction under 28 U.S.C. § 1332.

         II. Analysis

         As the removing party, defendants bear the burden of proving that the case meets the amount in controversy requirement. Plaintiffs assert, and the court agrees, that the appropriate standard of proof is the preponderance of the evidence. See Bartnikowski v. NVR, Inc., 307 Fed. App. 730, 734 n. 7 (4th Cir. 2009) (noting that other circuits have explicitly adopted the preponderance of the evidence standard where damages are unspecified).

         In this case, there is no ad damnum clause, and the plaintiffs do not expressly seek monetary relief. The test for determining the amount in a declaratory action is “the pecuniary result to either party which [a] judgment would produce.” Dixon v. Edwards, 290 F.3d 699, 710 (4th Cir. 2002) (quoting Gov't Emps. Ins. Co. v. Lally, 327 F.2d 568, 569 (4th Cir.1964)).

         Plaintiffs essentially offer two arguments for remand, which are in tension with each other: that the value of the lease is not at issue at all; and that the defendants have not shown that such value exceeds the jurisdictional threshold. Pffs.' Br. The second argument has greater ostensible merit, and plaintiffs appear to back away from the first one in their reply briefs.

         The first argument - that the value of the lease is not in issue - rests on the premise that plaintiffs do not request monetary relief, but rather contest the propriety of the assignment. Yet, under the “either party” view of Dixon, itself a declaratory judgment action, it matters much to Consol on whom plaintiffs would impose the guaranty given by COK and to Southeastern who may lose its mining rights under the Wahoowa Lease, particularly inasmuch as that lease is an integral part of a whole set of mining leases that it will operate jointly.

         Plaintiffs contend that they do not aim to deprive Southeastern of the “ability to mine the premises” because Southeastern will still be able to seek to enter into a new, proper agreement with Consol (as noted, plaintiffs assert that COK is a shell entity whose corporate veil should be disregarded). ECF No. 20 at 3. However, this contention is speculative. In actuality, should the plaintiffs prevail in this action, the lease would revert to COK, scrambling Southeastern's mining plans. Or, if the veil is pierced and Consol is deemed the lessee obligated under the lease to plaintiffs, the value of the lease is enhanced by Consol's likely superior financial status. ...

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