United States District Court, S.D. West Virginia
MEMORANDUM OPINION AND ORDER
T. COPENHAVER, JR., SENIOR UNITED STATES DISTRICT JUDGE
is plaintiffs' motion for declaratory judgment, filed
August 23, 2018. Also pending is the joint motion for summary
judgment of the defendants, CONSOL of Kentucky,
(“COK”), CNX Resources Corp. (“CONSOL
Energy”), and Southeastern Land, LLC
(“Southeastern”), filed January 15, 2019.
March 24, 2005, Huntington Realty, Inc.
(“Huntington”), as Lessor, entered into a coal
lease (“the Lease”) with Southern West Virginia
Energy, LLC (“Southern WVE”), as the
“Lessee.” Second Am. Compl., ECF No. 55, at
¶ 3; Lease Agreement, ECF No. 41-1, at 5. At the time
the Lease was executed, Southern WVE was comprised of a
fifty-one percent membership interest owned by Eagle Mining,
LLC and a forty-nine percent interest owned by CONSOL of WV,
LLC, a subsidiary of CONSOL Energy. Second Am. Compl., ECF
No. 55 at ¶ 4. In 2008, CONSOL of WV, LLC acquired Eagle
Mining, LLC's membership interest in Southern WVE, and
effective December 26, 2008, Southern WVE was merged into
COK, with COK as the surviving entity. Id. ¶ 6.
COK, a Delaware limited liability company, is a wholly-owned
subsidiary of CONSOL Energy, which appears to now be CNX
Resources Corp., each of which is a Delaware corporation.
Id. ¶ 7; see also Not. Removal, ECF No. 1, at
¶¶ 11, 12.
result of the merger, the parties agree that COK is the
“Lessee” in the Lease to Southern WVE. Pls.'
Reply, ECF No. 50, at 3; Defs.' Mem. Supp. Mot. Summary
J. (“Defs.' Mem.”), ECF No. 58, at 2.
February 25, 2015, HRC conveyed portions of the land under
the Lease to plaintiffs Wahoowa, Inc. (“Wahoowa”)
and SUVAC, Inc. (“SUVAC”), both West Virginia
corporations. Second Am. Compl., ECF No. 55 at ¶ 2; Not.
Removal, ECF No. 1, at ¶ 9-10. Wahoowa received the
mineral interests and SUVAC the surface interests to twelve
tracts of the property covered by the Lease. Second Am.
Compl., ECF No. 55, at ¶ 2.
19, 2016, CONSOL Energy notified plaintiffs that COK intended
to assign its entire interest in the Lease to Southeastern, a
Kentucky limited liability company. Second Am. Compl., ECF
No. 55, at ¶ 9; Not. Removal, ECF No. 1, at ¶ 13.
Later, in August 2016, CONSOL Energy informed the plaintiffs
that the transaction had closed on August 1, 2016 and that
COK had guaranteed Southeastern's performance under the
Lease. Second Am. Compl., ECF No. 55, at ¶ 11.
and SUVAC initiated this civil action in the Circuit Court of
Mingo County, West Virginia on September 15, 2017, pursuant
to the Uniform Declaratory Judgment Act, W.Va. Code §
55-13-1 et seq. Specifically, the plaintiffs ask that the
court “find and determine the assignment of the Lease
from COK to Southeastern is improper, invalid and contrary to
the terms and provisions of the Lease.” Second Am.
Compl., ECF No. 55, at ¶ 17.
12 of the Lease states that
it is the essence of this Lease that Lessor enters into this
Lease expressly relying upon the demonstrated skill,
experience, character, substance, credit and ability of
Lessee and its present management. . . . Lessor and Lessee
hereto expressly recognize and acknowledge that the
obligations of Lessee hereunder are “personal
services” of Lessee, a Lessee whom Lessor considers to
be uniquely competent and qualified to perform those
services. . . . For these reasons, Lessor demands, and Lessee
specifically agrees to, performance of all Lessee's
obligations herein from Lessee alone and, subject to Section
18 of this Lease, from no other person or entity.
Agreement, ECF No. 41-1, at 14-15.
18a of the lease governs assignments and provides as follows:
a. Lessee shall not sell, assign or transfer this Lease
without the prior written consent of Lessor. Without
denigrating the value to Lessor of Lessee's
“personal services” and Lessor's reliance on
the skill and ability of Lessee (as is more particularly
elaborated in Sections 12 and 36 of this Lease), Lessor and
Lessee agree that Lessee may freely assign, without written
consent, its rights under this Lease to a wholly-owned
subsidiary or an affiliate of, which is also controlled by,
Consol Energy, Inc. or a wholly-owned subsidiary or an
affiliate of Lessee so long as Lessee has the same partners
as of the date of this Lease. Lessor and Lessee have also
agreed that Lessee may freely assign, without written
consent, its rights under this Lease to a third party with
reasonable experience in the mining, marketing, and
processing of coal if the third party has a net worth of at
least $35, 000, 000 or to a third party with reasonable
experience in the mining, marketing, and processing of coal
if Consol Energy, Inc. or Lessee, so long as Lessee has the
same partners as of the date of this Lease, guarantees the
performance of the terms and provisions of this Lease by such
third-party assignee. A sale or other transfer of fifty
percent (50%) or more of the stock or membership interest of
Lessee to or the merger of Lessee into another entity where
Lessee is not the surviving entity shall constitute
assignment of the Lease for purposes of this Section 18(a).
Provided, however, a purchase by Consol Energy, Inc., or its
affiliates of all of the stock or membership interest in
Lessee shall not constitute an assignment of the Lease for
purposes of this Section 18(a).
* * *
The restrictions on assignment and subleasing contained in
this provision should be construed such that if Consol
Energy, Inc., a wholly-owned subsidiary of Consol Energy,
Inc. or an affiliate controlled by Consol Energy, Inc.
(collectively, “Consol Affiliate”) is not the
lessee or a partner or member of an entity which is the
lessee, then the new assignee must have a net worth of $35
million dollars or a Consol Affiliate or Lessee, so long as
Lessee has the same partners as of the date of this Lease,
guarantees the performance under this Lease.
Id. at 23-24.
court finds that the drafters' use of the word
“partners” in Section 18a doubtless refers to
CONSOL of WV, LLC and Eagle Mining, LLC, even though those
two entities were members, and not partners in the
conventional sense, of the originally named Lessee, Southern
WVE. Indeed, “[a]n LLC with at least two members is
classified as a partnership for federal income tax
purposes.” IRS Pub. 3402, at 2 (Jan. 1, 2016). It is
noted that, inasmuch as the court concludes that COK as