Knox Energy, LLC v. Gasco Drilling, Inc

Filing

UNPUBLISHED PER CURIAM OPINION filed. Originating case number: 1:12-cv-00046-JPJ-PMS Copies to all parties and the district court/agency. [999746511].. [14-2256, 14-2296]

Appeal: 14-2256

Doc: 57

Filed: 02/02/2016

Pg: 1 of 12

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 14-2256

KNOX ENERGY, LLC; CONSOL ENERGY, INCORPORATED,
Plaintiffs - Appellees,
v.
GASCO DRILLING, INC., A Virginia Corporation,
Defendant - Appellant.

No. 14-2296

KNOX ENERGY, LLC; CONSOL ENERGY, INCORPORATED,
Plaintiffs - Appellants,
v.
GASCO DRILLING, INC., A Virginia Corporation,
Defendant - Appellee.

Appeals from the United States District Court for the Western
District of Virginia, at Abingdon.
James P. Jones, District
Judge. (1:12-cv-00046-JPJ-PMS)

Argued:

December 9, 2015

Decided:

February 2, 2016

Before MOTZ and FLOYD, Circuit Judges, and John A. GIBNEY, Jr.,
United States District Judge for the Eastern District of
Virginia, sitting by designation.

Appeal: 14-2256

Doc: 57

Filed: 02/02/2016

Pg: 2 of 12

Affirmed in part, reversed in part, and remanded by unpublished
per curiam opinion.

ARGUED: Daniel G. Bird, KELLOGG, HUBER, HANSEN, TODD, EVANS &
FIGEL, P.L.L.C., Washington, D.C., for Appellant/Cross-Appellee.
Michael John Finney, GENTRY LOCKE, Roanoke, Virginia, for
Appellees/Cross-Appellants.
ON BRIEF: J. Scott Sexton, Monica
T. Monday, H. David Gibson, GENTRY LOCKE, Roanoke, Virginia, for
Appellees/Cross-Appellants.

Unpublished opinions are not binding precedent in this circuit.

2

Appeal: 14-2256

Doc: 57

Filed: 02/02/2016

Pg: 3 of 12

PER CURIAM:
Knox

Energy,

LLC

“Consol”)

brought

and

this

Consol

action

Energy,

seeking

a

Inc.

(collectively

declaratory

judgment

that a purported contract it signed with Gasco Drilling, Inc.
(“Gasco”)

was

not

enforceable.

The

district

judgment as a matter of law in favor of Consol.
that order and several pre-trial rulings.
of

judgment

as

a

matter

of

law,

but

court

granted

Gasco appeals

We reverse the grant
affirm

in

all

other

respects.

I.
A.
In

2008,

Consol,

a

natural

gas

producer,

and

Gasco,

a

drilling company, entered into a drilling agreement that lasted
for two years, or until Gasco completed its work.

Under the

contract, Consol agreed to pay a “standby” rate of $10,800 per
day, per drilling rig, for time when Gasco was on site but not
actively
higher
special

drilling.
fee.

While

Additionally,

“take-or-pay”

drilling,

Gasco

the

2008

provision,

which

received

agreement

an

even

contained

guaranteed

that

a

Gasco

would make two rigs available for Consol whenever it requested
work.

Whether or not Gasco was on site, it provided that Consol

would pay the standby rate for 328 days of each twelve-month
period.

In

May

2010,

the

parties
3

amended

the

agreement

to

Appeal: 14-2256

Doc: 57

Filed: 02/02/2016

Pg: 4 of 12

release one of the rigs from the contract.

The remaining rig

completed its work, and the contract terminated, in July 2010.
The essential dispute in this case is whether Gasco and
Consol reinstated that 2008 contract in 2011.

On June 6, 2011,

Consol emailed Gasco a document titled “Addendum to Contract
Purchase

Order.”

Clyde

Ratliff,

Gasco’s

Addendum and returned it on June 14, 2011.

CEO,

signed

Consol returned the

countersigned Addendum to Gasco on July 29, 2011.
stated

that

Gasco

and

Consol

“agree

to

the

The Addendum

modify

the

‘term’

provision of the contract purchase order to read as follows:”
that the new “term of this agreement shall be for one year from
the date set forth above and shall be automatically extended for
one

year

terms

unless

either

party

gives

written

termination at least thirty days before renewal.
was “effective” on June 13, 2011.

notice”

of

The Addendum

The “contract purchase order”

referenced in the Addendum was the 2008 drilling agreement, “PO
No. 5600000439.”
B.
For a year after signing this Addendum, Consol did not ask
Gasco

to

Addendum.

drill,

and

neither

party

communicated

about

the

Then, in June 2012, Gasco sent Consol a $7,084,800

bill for 328 days of take-or-pay standby charges.

Contending

that it had mistakenly signed the Addendum, Consol refused to
pay.

Additionally,

Consol

filed
4

this

diversity

action

for

Appeal: 14-2256

Doc: 57

Filed: 02/02/2016

declaratory relief.

Pg: 5 of 12

In response, Gasco sent Consol a second

$7,084,800 invoice as liquidated damages for early termination,
and counter-sued for breach of contract.
After discovery, both parties moved for summary judgment.
Consol

argued

in

the

alternative

that,

if

the

parties

had

reinstated the contract, it was in the same form as when it
originally terminated -- with only one rig.
granted

Consol

partial

summary

The district court

judgment

on

this

basis.

Otherwise, the district court denied both parties’ motions for
summary judgment.
The court also denied two of Gasco’s motions in limine.
First,

the

privilege

court
log

of

refused
“the

to

bar

general

Consol

subject

from
matter

communications between Gasco and its attorney.”

introducing
or

timing

a
of

Second, the

court allowed Consol to present parol evidence that it genuinely
made a mistake when it signed the Addendum.
to trial.

The case proceeded

At the conclusion of Gasco’s evidence, Consol moved

for judgment as a matter of law, which the court granted.

II.
A.
The principal issue before us is whether the district court
erred in granting judgment as a matter of law.
district court’s ruling de novo.
5

We review the

Sales v. Grant, 158 F.3d 768,

Appeal: 14-2256

Doc: 57

Filed: 02/02/2016

775 (4th Cir. 1998).

Pg: 6 of 12

We “must draw all reasonable inferences in

favor of [Gasco],” and “may not make credibility determinations
or weigh the evidence.”

Reeves v. Sanderson Plumbing Products,

Inc., 530 U.S. 133, 150 (2000).

We must reverse a grant of

judgment as a matter of law if “reasonable minds could differ”
on a verdict in Gasco’s favor.

Sales, 158 F.3d at 775.

Under Virginia law, a contract is not valid unless there is
an “agreement or mutual assent” between the parties.
Zehmer,

84

S.E.2d

party’s

“words

516,

and

522

acts,

(Va.

judged

1954).
by

a

Lucy v.

Objectively,
reasonable

if

a

standard,

manifest an intention to agree, it is immaterial what may be the
real but unexpressed state of [the party’s] mind.”

Id.

In

Lucy, defendants Zehmer contended that a document purporting to
sell their farm to the plaintiff, Lucy, had been a bluff.
at 517-20.
because

The Supreme Court of Virginia enforced the contract

the

reasonable
agreement.”

Id.

parties’

person

in

“conduct

and

believing

that

Id. at 522.

words
[they]

would

warrant

intended

a

a

real

Virginia courts continue to look for

outward “manifestation[s] of mutual assent.”

Wells v. Weston,

326

Falls

S.E.2d

672,

676

(Va.

1985);

see

also

Church

v.

Protestant Episcopal Church in the United States, 740 S.E.2d 530
(Va. 2013) (evaluating the expressions communicated between the
parties).

6

Appeal: 14-2256

Doc: 57

Filed: 02/02/2016

Pg: 7 of 12

B.
Consol’s basic argument supporting grant of judgment as a
matter of law is that “one cannot snap up an offer that is too
good to be true,” and Gasco could not have reasonably believed
Consol intended to renew the 2008 contract.

Consol Br. 41.

If

Gasco knew or should have known that Consol made a mistake, we
agree

there

was

no

mutual

assent.

But

Gasco

presented

sufficient evidence that, if credited, a reasonable jury could
have found in its favor.
Gasco’s case for contract formation included the Addendum
and

a

copy

of

the

2008

drilling

agreement.

Gasco

also

introduced emails showing that Consol initiated the transaction,
confirmed

that

the

2008

drilling

agreement

(referenced

by

number) was the contract referred to in the Addendum, confirmed
Gasco’s contact information, and returned the executed Addendum.
The parties dispute whether those documents and actions carry
any meaning.
First, in Consol’s view, its mistake was obvious.
Gasco’s

decades-long

relationship

with

Consol,

Despite

Gasco’s

CEO

Ratliff had never heard of the Consol employees who sent or
signed

the

Addendum,

a

Addendum.
Consol

In

her

email

representative

returning

perfunctorily

“for [its] cooperation with this matter.”

executed

thanked

Gasco

And the Addendum, as

sent to Gasco, did not include an effective date.
7

the

But Ratliff

Appeal: 14-2256

Doc: 57

Filed: 02/02/2016

Pg: 8 of 12

maintained he “never thought Consol made a mistake” and “didn’t
know who to call about the drilling.”

His secretary, who reads

and sends his emails, informed him that Consol wanted to renew a
contract.

Ratliff testified that it was not odd to renew an

expired contract, because “every contract [he had] ever had with
Consol was always open for additional drilling down the road.”
He thought nothing of the unfamiliar names, because Consol had
informed

him

that

it

“made

a

major

change”

and

that

“all

contracts [would] be coming out of chain supply management.”
Second,
its

Consol

knowledge

evidence.

of

argues

the

that

mistake,

Gasco’s
and

behavior

points

to

demonstrated

the

following

Gasco bid on Consol’s 2011 drilling in December 2010,

and knew Consol rejected that bid and hired a different company.
When Gasco received the Addendum, Ratliff consulted an attorney
before

signing

it,

although

contract decisions alone.

his

usual

practice

was

to

make

In September 2011, Ratliff met with

Consol without mentioning the take-or-pay contract he maintains
was in place.
other

Moreover, Ratliff did not tell his employees or

executives

about

the

contract.

Finally,

Consol after a whole year, rather than monthly.

Gasco

billed

Gasco responds

that Ratliff heard that the company that had won Consol’s 2011
bid “was having lots of problems.”

Ratliff testified that he

usually waited to tell his drilling team about a contract until
he had a work order to drill.

He said he did not follow up with
8

Appeal: 14-2256

Doc: 57

Filed: 02/02/2016

Pg: 9 of 12

Consol about drilling because the people he knew “had moved on.”
Finally, Ratliff contended that he billed at the end of the year
because that was Gasco’s typical practice.
Third,

Consol

maintains

that

a

commercially unreasonable in 2011.

take-or-pay

contract

was

Consol points to evidence

that Ratliff knew that natural gas prices were at historic highs
in 2008, when the original contract was signed, and had dropped
dramatically by 2011.

In fact, Gasco had only ever entered into

two take-or-pay contracts -- both in 2008 -- and almost all of
Gasco’s rigs were idle in 2011.

But Ratliff claimed that he had

a different “view of the market.”

Ratliff testified that in his

view Consol might have engaged in gas hedging to lock in higher
prices years in advance.
lease
prices.

obligations
Gasco

Additionally, Consol might have had

requiring

introduced

it

to

evidence

drill
that

despite
in

its

the

SEC

lower

filings,

Consol admitted that it sometimes attempted to mitigate risk “by
entering into ‘take or pay’ contracts,” even though it “may have
to pay for services that [it] did not use.”
Given this mix in the evidence, we cannot conclude that,
without

weighing

the

evidence

or

making

credibility

determinations, no reasonable jury could have rejected Consol’s

9

Appeal: 14-2256

Doc: 57

Filed: 02/02/2016

Pg: 10 of 12

contentions and instead found mutual assent.

Consequently, we

reverse the grant of judgment as a matter of law to Consol. ∗

III.
Gasco next appeals two of the district court’s rulings on
partial summary judgment.

As with judgment as a matter of law,

we review summary judgment de novo to determine “whether there
exist any genuine issues of material fact.”

Atalla v. Abdul-

Baki, 976 F.2d 189, 192 (4th Cir. 1992).
First, Gasco appeals the district court’s ruling that the
2008 agreement, if reinstated, included only one rig.
claims that
parties

“[a]

further

jury

could

amended

the

prior term amendments.”
that,

besides

modifying

reasonably
term

in

Gasco Br. 51.
the

“term”

infer

2011,

that,

they

Gasco

when

the

replaced

all

But the Addendum states
provision,

“all

other

provisions of the contract purchase order shall remain in full
force and effect.”
in

effect

that

The rig amendment was one of the provisions

remained

unchanged.

Unlike

the

appellant

in

Midlothian Coal Mining Co. v. Finney, 59 Va. 304 (1868), on
which Gasco relies, Gasco had ample opportunity for discovery.

∗

Because we find disputed issues of material fact
sufficient for this case to proceed to a factfinder, we reject
Consol’s contention that it was entitled to judgment on the
pleadings.
10

Appeal: 14-2256

Gasco

Doc: 57

did

Filed: 02/02/2016

not

produce

Pg: 11 of 12

sufficient

evidence

to

support

its

contrary interpretation.
Second,
Consol

from

Gasco

appeals

arguing

affirmative defense.
is

an

Spence
fraud).

the

unilateral

refusal

mistake

plus

to

foreclose

fraud

as

an

Gasco does not dispute the fact that fraud

affirmative

defense

v.

372

Griffin,

court’s

to

contract

S.E.2d

enforceability.

595,

(Va.

598

1998)

See

(defining

Rather, Gasco argues that “[a]s a matter of law, Gasco

did not commit fraud” because Consol’s own “system’s error” led
it

to

sign

the

Addendum.

Gasco

Reply

Br.

42-43.

But

considering the above evidence in the light most favorable to
Consol,

we

cannot

conclude

that

the

district

court

erred

in

refusing to grant summary judgment on this claim to Gasco.

IV.
Finally, Gasco challenges the district court’s denial of
two motions in limine.

We review the denial of a motion in

limine for abuse of discretion.

Projects Mgmt. Co. v. DynCorp

Int’l LLC, 734 F.3d 366, 373 (4th Cir. 2013).
First, Gasco argues that the court should have excluded
parol evidence of Consol’s mistake as “irrelevant, confusing,
and misleading.”

But Consol had to present some evidence of a

mistake in order to prove that its mistake was obvious to Gasco.
Furthermore,

both

parties

proposed
11

essentially

the

same

jury

Appeal: 14-2256

Doc: 57

Filed: 02/02/2016

Pg: 12 of 12

instructions, that “[i]f a person’s words or actions warrant a
reasonable person in believing that he intended real agreement,
his contrary, but unexpressed, state of mind is immaterial.”
Thus the jury would have been instructed that its decision on
mutual assent must rest on the objective circumstances.

The

court did not abuse discretion in allowing this evidence.
Nor did the court abuse discretion in allowing Consol to
introduce Gasco’s privilege log.

Gasco challenges the admission

of this log only on the grounds that it was irrelevant and
prejudicial.

But

as

Consol

argues,

the

log

rebuts

Gasco’s

narrative that there was nothing unusual about the Addendum that
would have alerted it to Consol’s mistake.

V.
For the forgoing reasons, the judgment of the district court is
AFFIRMED IN PART,
REVERSED IN PART,
AND REMANDED.

12