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Wickland v. American Mountaineer Energy, Inc.

United States District Court, N.D. West Virginia

June 18, 2018

MARGARET ANNE WICKLAND, as Trustee for and on Behalf of an Irrevocable Trust Established December 23, 1974, and Revocable Trust Established August 23, 1985; and GUY CORPORATION, Plaintiffs,
v.
AMERICAN MOUNTAINEER ENERGY, INC.; and MURRAY ENERGY CORPORATION, Defendants.

          MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS [DKT. NO. 19]

          IRENE M. KEELEY UNITED STATES DISTRICT JUDGE.

         For the reasons stated on the record during the scheduling conference, and for the reasons discussed below, the Court GRANTS in part and DENIES in part the defendants' motion to dismiss for failure to state a claim (Dkt. No. 19).

         I. FACTUAL AND PROCEDURAL BACKGROUND

         On December 1, 2017, the plaintiffs, Margaret Anne Wickland, as Trustee for and on Behalf of an Irrevocable Trust Established December 23, 1974, and Revocable Trust Established August 23, 1985, and Guy Corporation filed this action against American Mountaineer Energy, Inc. (“AMEI”), and Murray Energy Corporation (“Murray”) (Dkt. No. 1). The facts are taken from the complaint and construed in the light most favorable to the plaintiffs. See De'Lonta v. Johnson, 708 F.3d 520, 524 (4th Cir. 2013).

         The plaintiffs are the sole owners of two grants of right, title, and interest in and to the mineable and merchantable Pittsburgh vein or seam of coal underlying two parcels of land in Harrison County, West Virginia (“the Premises”). The plaintiffs or their predecessors in interest originally leased the Premises in 1958 and 1962. On September 12, 2008, however, AMEI became the lessee of the Premises pursuant to the assignment of a Consolidated, Amended and Restated Lease (“Lease”) (Dkt. Nos. 17-1; 17-2). That same day, Murray agreed to guarantee AMEI's performance under the Lease (Dkt. No. 17 at 6).

         The Lease had a primary term of 20 years, and the parties agreed that part of the consideration was the lessee's “commitment to promptly commence and actively pursue coal mining operations on the Leased Premises in order to maximize the benefits of the current coal market conditions” (Dkt. No. 17-1 at 21). To that end, the Lease imposed the following schedule on AMEI:

• September 14, 2010: Apply for necessary permits
• September 14, 2013: Receive all permits
• September 14, 2016: Commence substantial construction
• December 31, 2019: Operate longwall mining system

Id. at 22. In 2013, the primary term of the Lease was extended to 23 years, and these deadlines extended respectively to 2010, 2016, 2019, and 2022 (Dkt. No. 17-3 at 3).

         The Lease also contemplated annual “advance recoupable production royalties” in the amount of $1, 000, 000 or $2, 000, 000 beginning in 2008. These royalties were not intended to be penalties against AMEI, but rather were “compensation to Lessors for the delay in receiving Production Royalties . . . which were reasonably anticipated to have been paid if Lessee had timely performed such conditions and obligations.” Id. at 27-29. AMEI would have been able to recoup the advance payments once it actually began production and owed production royalties. If the Lease terminated for any reason, however, the advance royalty payments would “be forfeited and retained by Lessors, if not recouped by Lessee as provided.” Id.

         In the event that the Lease terminated, AMEI agreed “to cooperate in the timely transfer and/or assignment of any and all permits, licenses, etc. required for mining or operation to Lessors or to its designated assignee upon Lessor's request therefore, to the extent the same are assignable or transferrable.” Id. at 31. It also agreed to “promptly deliver to Lessors (or its designee) all surveys, maps, reports, drilling logs, core samples, coal analyses, and every other piece of information, document or instrument.” Id. at 32-33. If AMEI failed to pay a royalty, the plaintiffs had the right to terminate the Lease after providing AMEI with written notice and a ten-day cure period. Id. at 39-40. Upon termination, the plaintiffs had the right to re-enter the Premises, but AMEI would remain liable for “the payment of royalties due at the time of termination or re-entry.” Id. at 41.

         Finally, as relevant to the complaint, the parties “understood and irrevocably agreed that Lessee shall not have the right and shall not sell, transfer, mortgage, pledge, collateralize, pass, assign, sublease or encumber (collectively ‘Transfer') this Lease or any interest in the Leased Premises, in whole or in part, directly or indirectly, without the express prior written consent of Lessors which may be withheld for any reason, with or without cause, and Lessee hereby specifically and irrevocably waives and relinquishes all rights to make any Transfer without such written consent.” Id. at 44-45. The plaintiffs had the right to terminate the Lease if this provision was violated. Id. at 45.

         In 2013 and 2015 respectively, Murray acquired Consolidated Coal Company for $3.5 billion and other coal reserves from Foresight Reserves, LP for $1.37 billion. It stated by press release that the purchase would position “these companies for growth and for continued safe, low-cost coal production, utilizing the longwall mining method” (Dkt. No. 17 at 3). On August 31, 2016, Murray and AMEI advised the plaintiffs that, in order to “conserve cash, ” AMEI would not make the next scheduled advance royalty payment or comply with other obligations under the Lease. Id.

         When AMEI did not pay the scheduled advance royalty on September 14, 2016, the plaintiffs provided a notice of default. When neither AMEI nor Murray cured the default, the plaintiffs terminated the Lease on October 4, 2016. Id. at 10. On October 17, 2016, AMEI acknowledged receipt of the default and termination letters, but declined to cooperate in the transfer of mining permits. Id. Thereafter, the plaintiffs discovered that AMEI and Murray had been pledging, mortgaging, collateralizing, and encumbering the Lease without their consent. Id. at 11.

         In their complaint filed on December 1, 2017, the plaintiffs make three claims for relief. In Count One, the plaintiffs allege that AMEI breached the Lease by failing to make a scheduled $2, 000, 000 advance royalty payment on September 14, 2016; failing to mine the mineable and merchantable coal during the term of the Lease; pledging, encumbering, collateralizing, and/or otherwise transferring rights in the Lease without the plaintiffs' consent; failing to cooperate in the transfer and assignment of permits, licenses, other documents, and surface rights; and failing to provide surveys, maps, reports, drilling logs, and other documents. Id. at 13-18. As a result of these alleged breaches, the plaintiffs seek $4 million in advance royalty payments (the 2016 and 2017 payments), as well as $267, 820, 000 in lost production royalties and permitting expenses, with a present value of $110, 980, 000. Id. at 17-18. They also seek a declaration that previous advance royalty payments are forfeited. Id. at 18. In Count Two, the plaintiffs seek specific performance from AMEI and Murray, including the transfer of permits, licenses, pending permit applications, and necessary surface rights. Id. at 19-20. In Count Three, due to Murray's role as guarantor, the plaintiffs seek to hold it liable for AMEI's alleged breaches. Id. at 21.

         The defendants answered the complaint on January 8, 2018 (Dkt. Nos. 9; 10). Pending is their motion to dismiss portions of the complaint, which the Court took up at a scheduling conference held on April 4, 2018 (Dkt. Nos. 19; 23).

         II. STANDARD OF REVIEW

         Fed. R. Civ. P. 12(b)(6) allows a defendant to move for dismissal on the grounds that a complaint does not “state a claim upon which relief can be granted.” When reviewing a complaint, the Court “must accept as true all of the factual allegations contained in the complaint.” Anderson v. Sara Lee Corp., 508 F.3d 181, 188 (4th Cir. 2007) (quoting Erickson v. Pardus, 551 U.S. 89, 94 (2007)). “While a complaint . . . does not need detailed factual allegations, a plaintiff's obligation to provide the ‘grounds' of his ‘entitle[ment] to relief' requires more than labels and ...


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