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Wickland v. American Mountaineer Energy, Inc.

United States District Court, N.D. West Virginia

April 12, 2019

MARGARET ANNE WICKLAND, et al., Plaintiffs,
v.
AMERICAN MOUNTAINEER ENERGY, INC. et al., Defendants.

          MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT [DKT. NO. 142] AND DENYING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT [DKT. NO. 144]

          THOMAS S. KLEEH, UNITED STATES DISTRICT JUDGE

         This matter is before the Court on the parties' cross-motions for summary judgment, filed on November 30, 2018 [Dkt. Nos. 142 and 144]. The parties filed response and reply briefs on December 21, 2018 and January 11, 2018, respectively [Dkt. Nos. 157; 158; 159; and 160], and the issues are ripe for consideration.[1] For the reasons discussed below, the Court GRANTS in part and DENIES in part the motion for summary judgment filed by Plaintiffs [Doc. No. 142]. The Court DENIES the motion for summary judgment filed by Defendants [Doc. No. 144].

         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 (collectively “Plaintiffs”), filed this diversity action against American Mountaineer Energy, Inc. (“AMEI”) and Murray Energy Corporation (“Murray”) [Dkt. No. 1]. The Plaintiffs filed an unredacted complaint on February 20, 2018 [Dkt. No. 17] after the entry of a protective order on February 14, 2018 [Dkt. No. 16].

         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 “Leased Premises”) [Dkt. Nos. 17; 143-1]. 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. No. 143-1]. That same day, Murray agreed to guarantee AMEI's performance under the Lease [Dkt. No. 143-6 at 5].

         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. 143-1 at 21]. 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 by agreement to 23 years, and AMEI's deadlines were extended respectively to 2010, 2016, 2019, and 2022 [Dkt. No. 143-7 at 3-4]. The purpose of the Lease was for lessee to “install, at the earliest possible time, and thereafter operate at least one (1) complete, modern and efficient longwall mining system (including all related equipment and facilities) in the Leased Premises” [Dkt. No. 143-1 at 19]. As extended, the lessee was to “have installed and be diligently operating a complete, modern, efficient and adequate longwall mining system” on or before December 31, 2022 [Dkt. No. 143-7 at 3].

         The Lease also contemplated annual “advance recoupable production royalties” (“advance payments, ” “advance royalty payments” or “minimum royalties”) in the amount of $1, 000, 000 or $2, 000, 000 beginning in 2008 [Dkt. No. 143-1 at 27]. These minimum 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 obligation” [Id. at 27-29; Dkt. No. 143-8 at 6]. AMEI would have been able to recoup the advance payments once it began production and owed production royalties [Id.] 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 in this Lease” [Id.]. The provision for advance payments was restated in the 2013 Amendment to Consolidated, Amended and Restated Lease [Dkt. No. 143-7 at 4], and required AMEI to pay advance royalty payments to lessor of $2, 000, 000 in years one, two, seven, and eight of the Lease, as well as in years nine through the remaining term, from 2016 through 2031 [Id. at 3; 4]. Advance payments of $1, 000, 000 were owed to lessor in years three, four, five, and six [Id. at 4].

         As to the advance payments, the Lease provided that “[t]he ‘Amount Due' in each such year shall be adjusted based on any increase (but not any decrease) in the consumer price index (or other comparable index) using December 2008 as the ‘base'” [Dkt. No. 143-1 at 28]. The Lease further required lessee to credit any advance payment “from such Production Royalties paid to Lessee, any time, against the Production Royalty due in such year” [Id.]. No. advance payment “shall be due when Production Royalties actually paid in a year equal or exceed the Advance Recoupable Production Royalty payment due for such year” [Id.]. Moreover, if the Lease terminated for any reason, and the lessee “has not recovered all of the outstanding Advance Recoupable Production Royalties paid by Lessee hereunder against Production Royalty, . . . said unrecovered Advance Recoupable Production Royalties shall be irrevocably forfeited by Lessee” [Id.].

         If the Lease terminated or cancelled, 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” [Dkt. No. 143-1 at 31]. If the lease terminated for any reason other than the exhaustion of coal, AMEI 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, regardless of the form it is in, related in any way to this Lease and/or Lessee's activities and operations hereunder and/or in or on the Leased Property.

[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, AMEI would remain liable for “the payment of royalties due at the time of termination or re-entry” [Id. at 41.].

         With respect to lessor remedies, the Lease states that the “remedies set forth under this Lease shall be cumulative and shall not be exclusive of other rights or remedies available to Lessors under West Virginia statutory law or common law” [Dkt. No. 143-1 at 41]. In the event of termination, lessors “may re-enter and take possession of the Leased Premises without limitation of legal process, ” and thereafter “re-let the same, or any part thereof, upon such terms and conditions as Lessors may deem proper” [Id.]. According to the Lease, neither “reentry nor re-letting shall discharge the Lessee from the payment of royalties due at the time of termination or re-entry, or from any unsatisfied obligation of the Lessee under the Lease” [Id.]. Also, no termination or re-entry by lessors “shall bar the recovery of accrued royalties or damage for the breach of any of the terms, conditions or covenants on the part” of the lessee [Id.].

Pursuant to the Lease, 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.

[Dkt. No. 143-1 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 [Dkt. Nos. 17 at 3; 143-8 at 21-26]. Murray 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]. By letter on August 31, 2016, Murray and AMEI notified 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 [Dkt. Nos. 143-11 at 2-3; 143-13]. The “conserve cash” reference was explained as follows by a Murray corporate representative:

We have, just based on our credit agreements, very substantial payments due on our first lien debt at the end of each quarter, and we have very significant payments due on a semi-annual basis on April 15th and October 15th of each calendar year. So given the timing of this (the September 14, 2016 royalty payment), the conservation of cash would have been in an effort to have sufficient liquidity in order to make those required debt service payments.

         [Dkt. No. 143-8 at 10-11]. The representative acknowledged that Murray's concern about its “liquidity position” did not excuse AMEI's failure to pay Plaintiffs a minimum royalty under the Lease [Id. at 19-20]. Murray and AMEI offered to “put the project ‘on hold' for five (5) years” and to pay Plaintiffs $50, 000 annually in advance royalty payments rather than the $2, 000, 000 due under the Lease [Dkt. No. 143-13]. Defendants also advised the Plaintiffs that “there will be no increase to any amount payable in the future years to offset this reduced annual advance lease payment for the five (5) year period” [Id.].

         AMEI did not pay the scheduled advance royalty on September 14, 2016 when it was due [Dkt. No. 143-8 at 8]. Upon nonpayment, the Plaintiffs provided AMEI and Murray with a notice of default [Dkt. Nos. 143-4 at 4; 143-11 at 3; 143-14]. When neither AMEI nor Murray cured the default, the Plaintiffs terminated the Lease on October 4, 2016 [Dkt. No. 143-11 at 3]. On October 17, 2016, AMEI acknowledged receipt of the default and termination letters, but declined to cooperate in the transfer of mining permits [Dkt. No. 143-17]. At that time, AMEI stated that a transfer of the mining permits would not be possible because Plaintiffs do not hold the necessary property rights to the leasehold estate [Id.]. AMEI also notified Plaintiffs that the WV/NPDES permits would not be transferred [Id.]. Thereafter, the Plaintiffs learned that AMEI and Murray had been encumbering the leasehold interest under the Lease without the consent of Plaintiffs in connection with Murray financing transactions that took place in 2013, 2014, 2015, and 2016 [Dkt. Nos. 143-4 at 5; 143-5 at 7-8].

         AMEI and Murray acknowledge that the failure to pay Plaintiffs the advance recoupable production royalty on September 14, 2016, and the recording of encumbrances without Plaintiffs' consent breached the terms of the Lease[2] [Dkt. Nos. 143-4 at 6; 143-5 at 8; 145 at 2; 8; 17]. AMEI and Murray further acknowledge that, despite “reasonable cooperation” and application efforts, AMEI did not obtain a Section 401 Water Quality Certification (“Section 401 Certification”) or Section 404 Clean Water Act Permit (“Section 404 Permit”) by September 14, 2016 as required by the Lease [Dkt. Nos. 145 at 19; 30-32; 143-9 at 15-16].

         In their complaint, the Plaintiffs alleged three claims for relief. In Count One, the Plaintiffs claim that AMEI breached the Lease as follows: 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 obtain a Section 401 Certification and Section 404 Permit by September 14, 2016; 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 [Dkt. No. 1 at 13-18]. Because of these breaches, Plaintiffs seek advance or minimum royalty payments, lost production royalties and permitting expenses, and a declaration that the previous advance royalty payments are forfeited [Id. at 17-18]. 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 under the Lease, 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]. The Defendants filed a motion to dismiss portions of the complaint, which was considered by the Court at the April 4, 2018 scheduling conference [Dkt. Nos. 19; 23]. The Court issued a Memorandum Opinion and Order Granting in Part and Denying Part Defendants' Motion to Dismiss [Dkt. No. 19] on June 18, 2018. See, Wickland, et al. v. Am. Mountaineer Energy, Inc., et al., No. 1:17CV205, 2018 WL 3029273 (N.D. W.Va. June 18, 2018) (the “Order”). Of Plaintiffs' claims, the Court's Order dismissed two: breach of contract based on failing to mine the mineable and merchantable coal during the lease term; and breach of contract based on the implied covenant of good faith and fair dealing. Defendants' motion to dismiss was denied as to the remaining claims. The parties filed cross-motions for summary judgment on November 30, 2018 [Dkt. Nos. 142 and 144], and the matter is scheduled for a bench trial on April 15, 2019.

         II. STANDARD OF REVIEW

         Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); see alsoHunt v. Cromartie, 526 U.S. 541, 549 (1999); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Hoschar v. Appalachian Power Co., 739 F.3d 163, 169 (4th Cir. 2014). A “material fact” is a fact that could affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); News & Observer Publ'g Co. v. Raleigh-Durham Airport Auth., 597 F.3d 570, 576 (4th Cir. 2010). A “genuine issue” concerning a material fact exists when the evidence is sufficient to ...


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