The Kanawha-Gauley Coal & Coke Company v. Pittston Minerals Group, Inc.

Filing 127

MEMORANDUM OPINION AND ORDER pursuant to a bench trial conducted in this action on 3/28/2011 and for the reasons set forth more fully herein, directing that judgment be entered in favor of the plaintiff, Kanawha-Gauley Coal & Coke Company, against t he defendant, Pittston Minerals Group, Incorporated; the plaintiff is AWARDED judgment in the following amount: (1) $1,047,194.42 for unpaid royalty payments; (2) $134,080.32 for unpaid interest on late and unpaid royalties; (3) $15,500 for late payment penalties; (4) $212,889.89 for unpaid taxes, for a total judgment of $1,409,664.63. Signed by Judge Joseph R. Goodwin on 7/22/2011. (cc: attys; any unrepresented party) (taq)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
CHARLESTON DIVISION

THE KANAWHA-GAULEY COAL & COKE COMPANY,
Plaintiff,
v.

CIVIL ACTION NO. 2:09-cv-01278

PITTSTON MINERALS GROUP, INC.,
Defendant.

MEMORANDUM OPINION AND ORDER

On March 25, 2011, the parties each submitted proposed findings of fact and conclusions of
law to the court. On March 28, 2011, the court conducted a bench trial in this action. The parties
submitted supplemental briefing on April 12, 2011. Having considered the pleadings, the testimony
of witnesses, the documents in evidence, and the supplemental post-trial memoranda, the court
makes its Findings of Fact and Conclusions of Law in accordance with Rule 52(a) of the Federal
Rules of Civil Procedure.
I.

FINDINGS OF FACT
The following discussion represents the court’s findings of fact as to liability. Each finding

is made by a preponderance of the evidence.
A.

Kanawha-Gauley’s Lease with Kanawha-Development Corporation

This case arises out of a breach of a lease of coal property and related surface rights. The
plaintiff, Kanawha-Gauley Coal & Coke Company (“Kanawha-Gauley”) entered into an “Amended,

Consolidated, and Restated Lease” (“the Lease”) with Kanawha Development Corporation (“KDC”).
Under the Lease, which had an effective date of January 1, 1998, Kanawha-Gauley agreed to lease
property to KDC for mining purposes in exchange for receiving wheelage and royalty payments.
KDC had additional obligations under the Lease including paying required taxes on coal and real
estate, complying with applicable laws and regulations, and maintaining certain insurance policies.
In light of the extensive rights and obligations described in the Lease, I have limited my
findings of fact to the provisions that are relevant to the instant dispute. Articles III and X of the
Lease set out KDC’s royalty payment obligations. Article IV sets out KDC’s tax payment
obligations. Article XII details Kanawha-Gauley’s rights to enforce provisions of the Lease.
Article III of the Lease, entitled “Covenants of the Lessee” first described KDC’s obligation
to comply with appropriate federal, state, and local regulations. (Pl.’s Ex. 1, at 8-9.) Article III also
set out the rates and terms of KDC’s obligation to pay Kanawha-Gauley production (or tonnage)
royalties on each ton of coal that KDC “mined and delivered to the loading point” or “used and
consumed on the Leased premises by the Lessee.” (Id.) The court thus FINDS that royalties did not
accrue until the coal was used or delivered to the loading point. Article III set out the formula for
calculating the rate of the production royalty based, among other things, on the monthly average
gross selling price of the coal. (Id. at 8-11.) Pursuant to the Lease, production royalties were to be
calculated on a monthly basis, with the royalty payments for any given month due to KanawhaGauley on or before the 25th calendar day of the following month. (Id. at 10.) The lessor (KDC)
was responsible for weighing and measuring the volume of coal produced, however KanawhaGauley “maintained the right to test the accuracy of the method used.” (Id.) With respect to late
payments, the Lease provided that “[a]ny payment not promptly made by Lessee to the Lessor shall
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bear interest from the date due at two percentage (2%) per annum above the prevailing interest rate
then charged by Bank One, West Virginia, N.A., of Charleston, West Virginia or its succesor.” (Id.
at 13-14.) Article III also set a minimum yearly production royalty of $120,000 per year. (Id. at 12.)
Article X of the Lease described KDC’s obligation to pay “wheelage” royalties in exchange
for the right to transport coal “into, out of, over, through and under the Leased Premises.” (Id. at 25.)
Similar to Article III, Article X set out the formula for calculating the monthly wheelage royalties,
based in part on the origin and the selling price of the “foreign” coal. (Id. at 26-28.) As with the
production royalties, the wheelage royalties were due to Kanawha-Gauley on or before the 25th of
the following month. (Id. at 29.) Article X did not contain a separate yearly minimum for the
wheelage royalties and, instead, provided that the “rights and privileges under this Article X are
granted in consideration of the payment of $120,000.00 minimum royalty payment as required under
Article III, taxes as set forth in Article IV, indemnity and insurance as set forth in Article XVII, and
wheelage royalties on foreign coal.” (Id. at 26.)
Article IV described the taxes that KDC was obligated to pay under the Lease. Article IV
provided, in pertinent part, as follows:
Lessee covenants that, commencing with the 1998 ad valorem real estate taxes which
attached as a lien on July 1, 1997, Lessee shall promptly pay when and as the same
become due and payable, all valid taxes, levies and assessments on Leased Premises
. . . and the coal on, in and under said Leased Premises. . . .
(Id. at 14.) The section also required KDC to pay taxes on “improvements and property” on the
Leased Premises as well as “the leasehold estate hereby created.” (Id.)
Finally, Article XII of the Lease described Kanawha-Gauley’s rights and remedies against
a landlord to collect rents, demand that KDC comply with the terms of the Lease, and, ultimately,

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to terminate the Lease. Under Article XII, Kanahwa-Gauley, as lessor, could terminate the Lease
“[i]n the event Lessee shall fail to pay any rent, royalty, or other charge herein provided for or hereby
required when and as the same becomes due, . . . and after twenty (20) days have elapsed from
demand for the payment thereof has been made in writing by the Lessor.” (Id. at 31). The Lease also
provided that Kanahwa-Gauley could terminate the Lease for breaches of other provisions, including
subletting or assigning the Lease without Kanawha-Gauley’s permission or failing to comply with
“the applicable laws relating to mining operations.” (Id.)
B.

The Surety Agreement Between Kanawha-Gauley and Pittston

The Lease also contained an agreement (“the Agreement”) between Kanawha-Gauley and
the defendant, Pittston Minerals Group (“Pittston”), which is the basis for this lawsuit. The
Agreement appears on page 43 of the Lease (Pl.’s Ex. 1, at 46), immediately proceeding page 44,
which bears the notarized acknowledgment of signatures of representatives from all three companies:
Kanawha-Gauley, KDC, and Pittston. (Id. at 47.) Under the Agreement, Pittston agreed to the
following:
(i) to be jointly bound with Kanawha Development Corporation in the performance
of the Lessee’s covenants set forth herein to the same extent as if it had been a joint
lessee; (ii) to hold Lessor harmless from any cost, charge, expense, or loss due to
default under this Lease by Kanawha Development Corporation; (iii) that it consents
in advance to any modification of this lease and that its liability shall be deemed
modified in accordance with any such modification; (iv) that this guaranty applies to
renewals, extensions, and holdover terms of this Lease; (v) that this guaranty shall
remain in effect notwithstanding an assignment of this Lease or subletting of the
Leased Premises by the Lessee; (vi) that the undersigned waives its rights to trial by
jury with respect to this guaranty or any matters arising hereunder; (vii) that any and
all agreements, modifications and supplements hereafter entered into between Lessor
and Lessee respecting said lease and/or Leased Premises shall not relieve, change, or
discharge the obligations of the undersigned hereunder nor shall the consent of the
undersigned be required to make any such agreement, modification or supplements
effective.
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(Pl’s Ex. 1, at 46.) KDC was a fully owned subsidiary of Pittston when Kanawha-Gauley entered
into the Lease with KDC and the Agreement with Pittston.
The court FINDS that Kanawha-Gauley and KDC amended the Lease four times1 between
1998 and 2009. (Pl.’s Ex. 1, at 54-75.)

These amendments largely pertain to specific parcels of

property constituting the “Leased Premises,” however some of these amendments also modified the
royalties and late payment fees due under the Lease. Each of these amendments was signed by
Christian Bozorth on behalf of Kanawha-Gauley and an officer, either the president or vice president,
of Kanawha-Gauley.2 (Id., at 56-57, 60, 63-64, 74-75.) The court FINDS that Pittston is not
mentioned in these amendments, no Pittston representative signed any of the amendments, and there
is no evidence in the record to suggest that Pittston ever received any notice of the amendments. Of
particular relevance to this case is the fourth and final amendment to the Lease, which, among other
things, imposed additional late payment charges of up to $500 a month in addition to the interest that
Kanawha-Gauley charged for late payments. (Id. at 71-72.) The fourth amendment was not signed
until March 3, 2009, however, it stated that it was effective as of December 31, 2007. (Id. at 65, 75.)
C.

The Sale of KDC

On November 14, 2003, Pittston sold all of its stock in KDC to Appalachian Coal Holdings
(“Appalachian Coal”), Incorporated. The court FINDS and CONCLUDES that Pittston no longer
had any ownership interest in KDC, however, Pittston’s obligations under the agreement remained
1

The first document amending the Lease is titled as a “supplemental agreement,” however,
this document actually is the first amendment to the Lease. (Pl.’s Ex. 1, at 54-56.)
2

It appears that KDC’s management changed over the course of the eleven year period of
time, and, accordingly, three individuals, Bernie Mason, John C. Smith, Jr., and G. O. Young, II,
signed various amendments, each in his capacity as president or vice president of KDC. (Pl.’s Ex.
1, at 56-57, 60, 63-64, 74-75.)
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in effect. According to Christian Bozorth, president of Kanawha-Gauley, Pittston requested that it
be “released as guarantor” when it entered into the stock sale agreement with Appalachian Coal.
(Trial Tr. p. 29.) Mr. Bozorth stated that Kanawha-Gauley “decided not to release Pittston as
guarantor,” based on the financial information that Kanawha-Gauley received from Appalachian
Coal. (Id.) Kanawha-Gauley, after a disagreement with Appalachian Coal, began accepting the
monthly royalty and wheelage payments due under its Lease with KDC on checks from Appalachian
Coal.3
D.

KDC’s Breaches Under the Lease

By all accounts, KDC satisfactorily performed its obligations under the Lease for several
years until at least 2004. During trial, counsel for the plaintiff stated that there was a “material
breach” under the Lease in 2004 (Trial Tr. p. 4); however no explanation or evidence as to this
breach was presented at trial and it appears that it was resolved because Kanawha-Gauley and KDC
continued to perform under the Lease into 2009. During trial, counsel for the defendant also
referenced a 2008 dispute between Kanawha-Gauley and KDC, (Trial Tr. 11), which resulted in
arbitration and a June 6, 2008 settlement between Kanawha-Gauley, KDC, Appalachian Coal, and
Pittston (Def.’s Ex. 17). The court FINDS that neither the 2004 breach nor the 2008 settlement bear
on the instant dispute other than to explain the relationship between the players in this lawsuit.
3

Kanawha-Gauley’s accountant initially refused to accept checks from Appalachian Coal,
on the grounds that royalty checks “must be issued by Kanawha Development Corporation, who is
lessee,” and that if a royalty check “is not received from Kanawha Development Corporation, we
[Kanawha-Gauley’s accounting firm] are to receive a letter concerning payment by other parties.”
(Pl.’s Ex. 3.) On August 16, 2004, Appalachian Coal notified Kanawha-Gauley that “all
correspondences, payments, reports, and etc.,” sent by any of the Appalachian Coal companies are
sent “on behalf of Kanawha Development Corporation.” (Pl.’s Ex. 4.) Thereafter, KanawhaGauley’s accounting firm accepted payment made by the checks drawn on Appalachian Coal checks.
(Trial Tr. 34-36.)
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The instant dispute began in 2008 and ultimately resulted in KDC defaulting on the Lease
and Kanawha-Gauley terminating the Lease in 2009. The court FINDS that mining operations
ceased in mid-April of 2008, however, coal was still being sold, meaning that KDC continued to owe
royalties. (Trial Tr. p. 86.) During the time that KDC was in default on the Lease, mining
equipment and “coal stockpiles” were left on the leased premises. The parties dispute both the
ownership and the value of this property, however, for reasons discussed below, see Section
III.A.3.b, infra, the court need not address these disputes.
The court FINDS that the first breach concerned unpaid real estate taxes on the leased
property. On September 29, 2008, Kanawha-Gauley’s attorney sent KDC a letter via certified mail
informing KDC that it had failed to pay the ad valorem real estate taxes on the property as required
by the Lease. (Def.’s Ex. 5.) Included with this letter were 5 delinquency notices from the Sheriff
of Fayette County, West Virginia, stating that because the taxes had not been paid on the 5 plots of
property tax liens had been placed on the property. (Id.) The letter does not mention Pittston and
there is no evidence that Pittston received a copy of the letter or any other notice of KDC’s failure
to pay the required taxes.
The court FINDS that the next breach involved unpaid royalties. On December 25, 2008,
KDC failed to pay royalties for the production month of November. Appalachian Coal ultimately
paid the November royalties on behalf of KDC by check for $224,737.58 dated February 27, 2009.
(Pl.’s Ex. 8, at 26.) This check, which did not include payments for any interest or late fees, was
received by Kanawha-Gauley on March 2, 2009. (Id. at 25.)
The court FINDS that on January 25, 2009, KDC failed to make any royalty payment for the
production month of December. The royalty payment owed for the production month of December
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was $771,274.84.4 (Id. at 23.) On February 25, 2009, KDC again failed to make any monthly
royalty payment for the preceding month. The payment owed for January was $179,922.01. (Id. at
17.) As previously discussed, Appalachian Coal made a partial payment on KDC’s debt and paid
the outstanding $224,737.58 for the November production royalties. Kanawha-Gauley accepted this
payment on March 2, 2009. Thus, the court FINDS that as of March 2, 2009, Kanawha-Gauley was
still owed royalties for December and January, totaling $951,968.85, as well as interest and fees on
the late payments.
The court FINDS that in early March 2009, counsel for Kanawha-Gauley and Appalachian
Coal met and developed a payment plan for the debts owed under the Lease. (Trial Tr. p. 38-39.)
Pursuant to this plan, on March 25, 2009, Appalachian Coal sent a letter to Kanawha-Gauley
enclosing a check for partial payment of $200,000 towards the “production royalty owed to
Kanawha-Gauley for the production month of December.” (Pl.’s Ex. 6.) The letter confirmed a
“verbal agreement” between counsel for Kanawha-Gauley and Appalachian Coal. (Id.) The court
FINDS that as of March 25, 2009, payment for the production month of February was due under the
Lease, and this sum totaled $91,840.54. (Pl.’s Ex. 6.) Thus, as of March 26, 2009, when KanawhaGauley received this second partial payment, the court FINDS that Kanawha-Gauley was still owed
royalty payments of $571,274.84 for the production month of December, $179,922.01 for the
production month of January, and $91,840.54 for the production month of February, and these past
due royalty payments totaled $843,037.39. (Id.) The court FINDS that Kanawha-Gauley was also
owed interest and late payment fees on this outstanding debt. Pursuant to the payment plan, as

4

This figure refers solely to the royalty payments owed under the Lease; it does not include
interest or late payment charges that were later imposed by Kanawha-Gauley.
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confirmed by Appalachian Coal’s March 25, 2009 letter, “the balance of $571,274.84 plus January
and February production royalties [for a total of $843,037.39] and any interest due would be paid
by April 30.” (Id.)
The court FINDS that Kanawha-Gauley did not receive any further payments towards these
outstanding debts. No evidence was introduced at trial as to further discussions of or payments made
on these outstanding debts. In addition, the court FINDS that although coal continued to be sold
from the leased premises, Kanawha-Gauley did not receive royalty payments for the production
months of March, April, May, or June of 2009. The court FINDS that these payments were owed
in the amounts of $113,680.78 for the production month of March, $71,052.00 for the production
month of April, $19,182.18 for the production month of May, and $242.07 for the production month
of June.5
E.

KDC’s Default and Termination of the Lease

The court FINDS that on May 22, 2009, Kanawha-Gauley mailed a notice of default pursuant
to Article XII of the Lease to both KDC and Pittston. (Pl.s’ Ex. 9.) The notice made a demand for
“all past due rent, royalty, and other charges due from you to the Lessor,” and provided that
“pursuant to ARTICLE XII of the above-referenced instrument, if said sums are not paid and twenty
(20) days have elapsed from the date of the receipt of this letter, that the Lessor may terminate said
lease.” (Id.) Specifically, the notice demanded the following payments:
1.
2.

5

Production royalties for the production months of December 2008, January
2009, February 2009, and March 2009, totaling $889,391.77;
Wheelage royalties for the production months of December 2008, January
2009, February 2009, and March 2009, totaling $67,326.40;

This figure accounts only for royalties incurred prior to the June 19, 2009 termination date.
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3.
4.
5.

Interest on the past due royalty payments, totaling $10,157.32 as of May 1,
2009;
Interest on the late payment for the production month of November and the
late (partial) payment for the month of December, totaling $3,892.31; and
Late payment penalty charges “as of the 25th day of the month for the months
of January 2008, through December 2008 and the months of January 2009
through April 25, 2009, totaling $8,000.”

(Id.) The notice provided that the total for all of the past due amounts was $978,676.80 as of May
1, 2009, and that for each day after May 1, 2009, interest on the past due royalty amounts would
continue to accrue. (Id.) Finally, the letter stated that “if all such past due sums are not paid by the
25th day of May, 2009, there is an additional $200.00 late payment penalty charge for each payment
due in the month of May,” and reiterated that late payment penalties would continue to accrue at a
cap of $500 per month, pursuant to the fourth amendment to the Lease. (Id.) The letter made no
mention of unpaid or delinquent taxes.
The court FINDS that Pittston received this notice on May 27, 2009. (Id.) According to
David Fields, president of Pittston, Pittston contacted Kanawha-Gauley, either directly, or by
copying them on a letter to KDC. (Trial Tr. p. 108.) On June 9, 2009, Pittston’s attorney contacted
Appalachian Coal, notifying them of KDC’s default under its Lease with Kanawha-Gauley and
requesting that Appalachian Coal indemnify Pittston “with respect to the claims asserted by
Kanawha-Gauley Coal and Coke Company” pursuant to the terms of the 2003 stock purchase
agreement between Pittston and Appalachian Coal. (Pl.’s Ex. 18.) The court FINDS that aside from
these communications, Pittston did not take any other action within the twenty-day period to cure
KDC’s defaults under the Lease or to contact Kanawha-Gauley regarding KDC’s defaults or the
pending termination. (Trial Tr. p. 110-11).

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The court FINDS that on June 10, 2009, Kanawha-Gauley mailed a second notice of default
to KDC and Pittston, and this notice pertained to KDC’s failure to pay the required taxes and
maintain certain insurance coverages under the Lease. (Def.’s Ex. 10.) The notice specifically
demanded that payment be made for “the taxes for the calendar year 2008, that attached as a lien on
July 1, 2007, the first half was due by September 1, 2008, and the second half by February 1, 2009.”
(Id.) As with the earlier notice, the letter reiterated Kanawha-Gauley’s right to terminate the Lease
if the tax defaults were not cured within twenty days of receipt of the notice.
The court FINDS that on June 19, 2009, Kanawha-Gauley terminated the Lease. The court
further FINDS that as of that date, Kanawha-Gauley was owed $1,027,770.17 in unpaid production
and wheelage royalties for the production months of December 2008 through April 2009, exclusive
of interest and late payment fees, which continued to accrue on an ongoing basis. (Pl.’s Ex. 8.) As
of June 19, 2009, royalty payments for the production months of May and (part of ) June were not
technically “past due,” as payments for these months were not due until June 25 and July 25,
respectively. Nevertheless, the court FINDS and CONCLUDES that Kanawha-Gauley is owed
production royalties6 on the coal “mined and delivered to the loading point” or “used and consumed
on the Leased premises” up until the termination of the Lease on June 19, 2009. The past due
payments were in the amount of $19,182.18 for the production month of May and $242.07 for the
production month of June, for a total of $19,424.25. (Id.) The court FINDS that, as of the time
Kanawha-Gauley filed the instant suit, the past due payments totaled $1,047,194.42. The court
further FINDS that as of June 19, 2009, the 2008 taxes required under the Lease remained unpaid,
although these unpaid taxes were not technically a “debt” owed directly to Kanawha-Gauley. On
6

No wheelage royalties were incurred during the production months of May or June of 2009.
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July 30, 2009, Kanawha-Gauley paid the delinquent taxes for the 2008 tax year, and KanawhaGauley now seeks reimbursement for these tax payments.7
F.

Bankruptcy and Related Proceedings Involving Appalachian Coal

During the time period of KDC’s breaches and default, Appalachian Coal encountered
financial difficulties that ultimately resulted in the creditors of Appalachian Fuels, LLC, which was
an operating subsidiary of Appalachian Coal, filing an involuntary Chapter 7 bankruptcy petition
against Appalachian Fuels, LLC in the United States Bankruptcy Court for the Eastern District of
Kentucky on June 26, 2009. In re Appalachian Fuels, LLC, No. 09-bk-10343 (Bankr. E.D. Ky.
2009). Although I believe that these issues are, at best, of limited relevance to the instant action, I
will address them briefly here because the defendant has repeatedly relied on them.
The court FINDS that on May 29, 2009, prior to the filing of the Chapter 7 petition, the
creditors of the Appalachian Holding Company, Inc., and its subsidiaries (collectively
“Appalachian”), including the subsidiary Appalachian Coal, were contacted by letter from counsel.
(Def.’s Ex. 9.) The letter stated that on May 26, 2009, Appalachian executed “Deeds for the
Assignment for the Benefit of Creditors conveying all property of the Assignors (the “Property”) to
the undersigned.” (Id.) The undersigned was an assignee-trustee appointed by the District Court of
Fayette County, Kentucky to “liquidate the Property in order to maximize the value of the Property
for the benefit of the creditors of the Assignors in accordance with the priorities and procedures
established by law.” (Id.) As part of this assignment, KDC, which was fully owned by Appalachian

7

On October 15, 2009, Kanawha-Gauley made an additional tax payment in the amount of
$80,792.39 for taxes for the first half of 2009. For reasons discussed in the damages section, see
Section IV.B, infra, the court concludes that this payment is not recoverable.
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Coal, which, in turn, was a subsidiary of Appalachian, assigned “all of its property” to the trustee.
(Def.’s Ex. 7.)
On July 29, 2009, Kanawha-Gauley filed an adversary complaint for declaratory relief against
KDC and the above-named trustee in the United States Bankruptcy Court for the Eastern District of
Kentucky. Kanawha-Gauley Coal & Coke Co. v. Kanawha Dev. Corp., No. 09-ap-01013 (Bankr.
E.D. Ky. 2009). Kanawha-Gauley sought declaratory relief that the Lease was terminated before the
June 26, 2009 bankruptcy petition was filed, and, accordingly, that the Lease was not a part of the
bankruptcy estate. On September 29, 2009, the bankruptcy court, by agreed judgment of the parties,
ruled that the Lease was not property of KDC’s estate. Agreed Judgment, Kanahwa-Gauley Coal
& Coke Co. v. Kanawha Dev. Corp., No. 09-ap-01013 (Bankr. E.D. Ky. Sept. 29, 2009).
G.

Post-Termination Communications

The court FINDS that on July 1, 2009, counsel for Pittston sent Kanawha-Gauley a letter,
stating Pittston’s position that Kanawha-Gauley’s June 19, 2009 termination of the Lease also
terminated Pittston’s guaranty agreement. (Def.’s Ex. 12.) There is no evidence in the record that
Kanawha-Gauley ever responded to this letter.
The court FINDS that on September 22, 2009, Pittston sent Kanawha-Gauley another letter,
which reiterated Pittston’s position that “it is discharged from any obligation under the Guaranty
Agreement.” (Def.’s Ex. 13.) In short, Pittston accused Kanawha-Gauley of inappropriately dealing
with KDC and pursuing a new lease with another party, all of which increased Pittston’s risk of
liability. According to Pittston, Kanawha-Gauley’s June 19, 2009 termination of the Lease with
KDC was ineffectual because Kanawha-Gauley failed to provide the Fayette County assignee-trustee
with its June 19, 2009 termination notice. (Id.) Pittston stated that for “this and other reasons efforts
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to terminate the lease were ineffectual.” (Id.) Pittston argues that, Kanawha-Gauley had not actually
terminated the Lease as of the June 26, 2009 bankruptcy filing. Thus, under Pittston’s theory, the
Lease was part of the bankruptcy estate, contrary to any assertions or agreements made by KanawhaGauley or KDC in the bankruptcy proceedings. As previously discussed, the bankruptcy court
entered an order to the contrary, declaring that the Lease “terminated and is not property of KDC’s
estate.” Agreed Judgment [Docket 8], Kanawha-Gauley Coal & Coke Co. v. Kanawha Dev. Corp.,
No. 09-ap-01013 (Bankr. E.D. Ky. Sept. 29, 2009).
According to Pittston,“it is clear that the Lease, if left in the bankruptcy estate, would have
been assigned and pre-petition defaults, if any, cured without any liability to Pittston.” As discussed
above, Kanawha-Gauley and KDC entered into an agreement, subsequently entered by the
bankruptcy court, that the Lease was not part of the bankruptcy estate. Pittston, however, challenges
the validity of this agreement because it constituted “inappropriate dealings” between KanawhaGauley and KDC and “increased the risk of loss to the guarantor, in this case Pittston.” (Id.) Pittston
claimed that “but for the KDC and [Kanawha-Gauley] agreement not to contest the termination of
the Lease [the defaults] would likely have been cured in the Bankruptcy Proceeding.” (Id.) Pittston
essentially argued that Kanawha-Gauley had an obligation to allow the Lease to be included in the
bankruptcy estate where, Pittston argued, it would have been cured, thus relieving Pittston of
liability. Finally, the letter “advised that Pittson considers the actions of [Kanawha-Gauley] in
pursing the Massey Transaction to constitute a breach of its duty to Pittston” and requested that
Kanawha-Gauley “preserve all documents related to the Massey transaction.” (Id.)
H.

The Instant Action

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On September 25, 2009, Kanawha-Gauley filed the instant action against Pittston in the
Circuit Court of Fayette County, West Virginia. The plaintiff’s Complaint asserts claims for breach
of contract and estoppel and the plaintiff claimed damages for unpaid royalties, unpaid wheelage,
unpaid real estate taxes, missing coal, lost coal, and unperformed reclamation obligations as well as
legal costs and fees. On November 24, 2009, the defendant removed the action to this court pursuant
to 28 U.S.C. § 1332 based on complete diversity of citizenship between the parties.
On November 3, 2010, the parties filed cross-motions for summary judgment, which, after
briefing and oral argument on the issues, this court denied in a Memorandum Opinion and Order
dated January 28, 2011 [Docket 81]. On March 29, 2011, the court conducted a bench trial in this
action. The court requested supplemental briefing on two issues: (1) the notice obligations owed to
a joint obligor or surety; and (2) the scope and nature of a party’s duty to mitigate damages. The
parties submitted these briefs on April 12, 2011.
During trial, the plaintiff called two witnesses: Christian Bozorth and David Fields. The
defendant called one witness, Scott Dyer. The court has made findings as to the credibility of each
of these witnesses below. The parties also introduced numerous exhibits, which the court has relied
on extensively in makings its findings today. To the extent that the parties raised questions or
objections to the admissibility of evidence, the court has noted and resolved the objections.
The defendant also sought to introduce additional testimony as to the value of equipment and
coal stockpiled on the leased premises by way of exhibits and testimony. (Trial Tr. 123-26). Rather
than admit this additional evidence into the record over the plaintiff’s objections, the court accepted

-15-

the defendant’s proffer as to the exhibits and testimony. (Trial Tr. 126-41.)8 Following trial, the
defendant filed these exhibits with the court, requesting that the court “take notice” that they were
offered and refused at trial. (Notice of Filing [Docket 123].) As I will discuss below, this additional
proffered evidence is solely relevant, if at all, to damages and Pittston’s attempts to limit the same.
The proffered evidence does not bear on the issue of Pittston’s liability. The court has considered
Pittston’s proffered evidence in light of the entirety of the record, and ultimately concludes that this
proffered evidence is not necessary or appropriate for consideration in deciding the issues before the
court.
II.

FINDINGS CONCERNING EVIDENCE AND WITNESS CREDIBILITY
The relevant facts in this case are largely undisputed. Perhaps because of that, a substantial

majority of the relevant evidence in this case was presented to the court in the form of exhibits
containing, among other things, legal documents (including the Lease and amendments),
correspondence between the parties and players, and royalty statements. The testimony of the three
witnesses served largely to offer background on the relationships between the parties, to place the
exhibits in context, and to lay a foundation for the admission of the exhibits into evidence.
Accordingly, in reaching its findings of fact, the court has largely relied on the admitted exhibits
rather than the testimony of the witnesses. Nevertheless, the court will briefly summarize its general
findings as to the credibility of the three witnesses.
A.

Christian Bozorth

8

Because these materials are not relevant to my decision here, I need not address the
plaintiff’s evidentiary objections to the same under Daubert v. Merrell Dow Pharmaceuticals, Inc.,
509 U.S. 579 (1993), as well as Rule 26 of the Federal Rules of Civil Procedure.
-16-

Mr. Bozorth testified as to the history and nature of the relationship between KanawhaGauley, KDC, Pittston, and Appalachian. To the extent that Mr. Bozorth’s testimony was
corroborated by evidence in the record, the court credits his testimony and has relied on it to place
the plaintiff’s exhibits in context. When questioned on direct examination, Mr. Bozorth appeared
forthright and generally knowledgeable. The court does note that Mr. Bozorth appeared less credible
on cross examination when questioned about certain events and decisions that occurred in the spring
of 2009. Specifically, the court notes that Mr. Bozorth was evasive when asked about his decisions
regarding notice to Pittston of KDC’s breaches under the Lease. (Trial Tr. p. 73-77.) Ultimately,
this testimony was not dispositive because Pittston failed to establish that Kanawha-Gauley was
required to provide Pittston with this additional notice.
B.

David Fields

The plaintiff also called David Fields, the current president of Pittston Coal Management
Company, which is the company that manages the defendant Pittston. Mr. Fields testified briefly
as to the correspondence between Kanawha-Gauley and Pittston regarding KDC’s breaches under
the Lease and the actions that Pittston took regarding these breaches. The court credits Mr. Fields’
testimony as it relates to these events and has relied on it both for background and to place exhibits
in context. Mr. Fields appeared sincere, forthright, and candid and his testimony was not
contradicted anywhere in the record.
C.

Scott Dyer

The defendant called Scott Dyer, a former employee in the accounting department of
Appalachian Coal. Mr. Dyer testified about procedures for mining, shipping, measuring, and selling
the coal from the leased property. Mr. Dyer also testified as to the procedures for making royalty
-17-

payments on the coal to Kanawha-Gauley. Mr. Dyer appeared knowledgeable and forthright and
the court credits Mr. Dyer’s testimony, although it was ultimately irrelevant to the disputed issues.
III.

CONCLUSIONS OF LAW
A.

COUNT ONE - BREACH OF CONTRACT
1.

Elements of a Breach of Contract Claim

In order to establish a claim for breach of contract under West Virginia law, a plaintiff must
prove the following elements by a preponderance of the evidence: (1) the existence of a valid,
enforceable contract; (2) that the plaintiff has performed under the contract; (3) that the defendant
has breached or violated its duties or obligations under the contract; and (4) that the plaintiff has
been injured as a result. See Exec. Risk, Inc. v. Charleston Area Med. Ctr. Inc., 681 F. Supp. 2d 694,
714 (S.D. W. Va. 2009).
With respect to the fourth element, “[r]ecoverable damages in an action for breach of contract
cannot be too remote, contingent or speculative, but must consist of actual facts from which a
reasonably accurate conclusion could be drawn regarding the cause and amount of such damages.”
Exec. Risk Inc., 681 F. Supp. 2d at 726. Thus, a plaintiff must establish not only the amount of its
damages but also that the damages were proximately caused by the defendant’s breach. Courts in
West Virginia also consider the application of several additional doctrines in calculating the
appropriate damages for a breach of contract claim and these doctrines are discussed below. See
Section III.A.3, infra.
The relationship between parties to a contract is governed not only by the agreement itself,
but also by “extra-contractual” duties imposed on the parties by operation of statutes and the
common law. Specifically, “West Virginia recognizes the rule that ‘in every contract there exists
-18-

an implied covenant of good faith and fair dealing.’” Knapp v. Am. Gen. Fin. Inc., 111 F. Supp. 2d
758, 767 (S.D. W. Va. 2000) (quoting Harless v. First. Nat’l Bank in Fairmont, 246 S.E.2d 270, 274
(W. Va. 1978)). This duty does not exist in a vacuum and “[q]uestions of good-faith performance
thus necessarily are related to the application of the terms of the contractual agreement.” AllisChalmers Corp. v. Lueck, 471 U.S. 202, 217 n. 11 (1985). Moreover, a claim that a party to a
contract breached this duty is not a stand-alone cause of action under West Virginia law. Highmark
West Virginia v. Jamie, 655 S.E.2d 509, 514 (W. Va. 2007) (“[A]n implied covenant of good faith
and fair dealing does not provide a cause of action apart from a breach of contract claim.”).
The court hereby CONCLUDES that the plaintiff has established, by a preponderance of the
evidence, all of the elements of a breach of contract claim. First, there is no dispute as to the
existence of a valid and binding agreement between the parties. Second, the plaintiff acted in good
faith in performing its obligations under the contract.9 The suretyship10 contract between Kanawha-

9

My analysis here is confined to the second element of a breach of contract claim. I will
address Pittston’s arguments as to the duty of good faith under suretyship law in the following
section. See Section III.A.2, infra.
10

Throughout the course of this litigation, the parties have used the terms “guarantor” and
“surety” interchangeably. Although a surety and a guarantor “are both bound for another person,”
“there are points of difference between them which should be carefully noted.” (Black’s Law
Dictionary (9th ed. 2009) (quoting 1 George W. Brandt, the Law of Suretyship and Guaranty § 2, at
9 (3d ed. 1905)). The distinction is as follows:
A surety is usually bound with his principal by the same instrument, executed at the
same time and on the same consideration. [. . .] On the other hand, the contract of the
guarantor is his own separate undertaking, in which the principal does not join. It is
usually entered into before or after that of the principal, and is often founded on a
separate consideration from that supporting the contract of the principal.
Id. Based on this definition, it appears that Pittston was a surety rather than a guarantor. Pittston
was an original promisor, as evidenced by the agreements between the parties. The Agreement
between Kanawha-Gauley and Pittston was included as part of the Amended, Consolidated Lease
(continued...)
-19-

Gauley and Pittston was straightforward; in exchange for Pittston’s promise to be liable as a surety,
Kanawha-Gauley agreed to enter into the Lease with KDC. Accordingly, the plaintiff adequately
performed under the contract by entering into the Lease with KDC and fulfilling its obligations under
that Lease. Third, Pittston has failed to fulfill its obligations under the Agreement. Pittston has not
made any payments to Kanawha-Gauley or taken any other action “to hold [Kanawha-Gauley]
harmless from any cost, charge, expense, or loss” due to KDC’s default as required by the
Agreement. Fourth, Kanawha-Gauley has suffered injury as a result of Pittston’s breach of the
Agreement.
2.

The Law of Suretyship and Guaranty

In addition to the general principles of contract law discussed above, the relationship between
contracting parties may also be subject to additional rules and duties depending on the specific nature
of the contract and the relationship. The agreement at issue in this case was a suretyship agreement,
wherein Pittston agreed to be “jointly bound with Kanawha Development Corporation in the
performance of the Lessee’s [KDC’s] covenants set forth herein to the same extent as if it had been
a joint lessee” and to “hold Lessor [Kanawha-Gauley] harmless from any cost, charge, expense or
loss due to default under this Lease by Kanawha Development Corporation.” (Pl.’s Ex. 1, at 46.)
Thus, the contract and the relationship between the parties is also governed by common-law
principles of suretyship. See Restatement (Third) of Suretyship & Guaranty § 17 (1996) (“The duties
of the secondary obligor to the obligee, and of the obligee to the secondary obligor, are those existing

10

(...continued)
document. (Pl.’s Ex. 1.) Because I have carefully considered the defenses that Pittston raises as
either a surety or a guarantor, I need not delve further into the distinctions between the two concepts.
-20-

pursuant to the contract creating the secondary obligation, subject to the secondary obligor’s defenses
arising out of suretyship status.”).
Under West Virginia law, a creditor “is bound to observe good faith with the surety.”
Leonard v. Jackson Cnty. Court, 25 W. Va. 45 (W. Va. 1884). A creditor “must withhold nothing,
conceal nothing, release nothing which may possibly benefit the surety.” Id. “If a creditor does any
act injurious to the surety, or inconsistent with his rights, or if he omits to do any act, when required
by the surety, which his duty enjoins him to do, and the omission proves injurious to the surety, in
all such cases the latter will be discharged, and he may set up such contract as a defense to any suit
brought against him, if not at law, at all events in equity.” Id.
A secondary obligor may rely on two categories of defenses—those available to the principal
obligor (such as common-law contract defenses) and those “suretyship defenses” that arise by
operation of the surety’s status as a secondary obligor. See Restatement (Third) of Suretyship &
Guaranty § 19 (1996). The “suretyship defenses” generally apply when the obligee has taken some
action that hinders the interest of the secondary obligor, often to the benefit of the primary obligor.
See Id. §§ 31-49. Such defenses apply when, for example, the primary obligor has already tendered
performance to the obligee (in whole or in part) or when an obligee impairs or releases collateral that
served as security for the underling obligation between the obligee and the primary obligor. (Id.)
Pittston relies on the heightened duty of good faith as an affirmative defense and asserts that
Kanawha-Gauley breached this duty by failing to provide Pittston with timely notice of KDC’s
breaches under the Lease.11 The court CONCLUDES that Kanawha-Gauley’s notice to Pittston was
11

Pittston raises its “landlord’s lien” defense in relation to both the duty of good faith owed
to a surety and a plaintiff’s duty to mitigate his damages. This court has already held that “Kanawha(continued...)
-21-

adequate under both the terms of the agreement (see Pl.’s Ex. 1, at 31-33, 41), and the duty of good
faith that is owed to a surety. The Agreement between Kanawha-Gauley and Pittston does not
contain any language suggesting that Kanawha-Gauley was required to notify Pittston of KDC’s
performance under the Lease. Under West Virginia law, the duty of good faith requires that an
obligor “withhold nothing, conceal nothing, release nothing which may possibly benefit the surety.”
Leonard, 25 W. Va. 45. This duty, however, does not require an obligor to provide additional notice
to a surety or otherwise allow a surety to unilaterally rewrite the suretyship agreement and impose
additional terms on the obligor.12 Kanawha-Gauley gave Pittston notice of KDC’s default and
allowed both KDC and Pittston over twenty days to cure the default.13 There is no evidence in the
record that Pittston contacted Kanawha-Gauley or took any other steps to remedy KDC’s defaults

11

(...continued)
Gauley did not have a duty to enforce its lien [assuming the existence of a landlord’s lien] against
KDC before proceeding against Pittston, who unconditionally guaranteed KDC’s performance under
the lease.” (Mem. Op & Ord. [Docket 92], at 6.) I hereby CONCLUDE that the duty of good faith
implicit in a suretyship agreement similarly did not require Kanawha-Gauley to take steps to enforce
any landlord’s lien or to collect from KDC before pursuing contractual remedies against Pittston.
I will, however, also consider the “landlord’s lien” defense in the context of the duty to mitigate.
See Section III.A.3.b, infra.
12

The court reiterates that Pittston’s reliance on suretyship cases involving debtors, creditors,
and secured transactions are distinguishable from the present case, which involves a suretyship
agreement ancillary to a lease rather than a secured loan. (Mem. Op & Ord. [Docket 92], at 4-6.)
None of the agreements in this case involved collateral of any kind, and Pittston’s suggestion that
Kanawha-Gauley could have “locked the gate” and taken possession of property left on the leased
premises does not alter the fact that this was not a transaction secured by collateral.
13

As the defendant points out, there was a prior dispute between Kanahwa-Gauley, KDC,
Appalachain Coal, and Pittston which resulted in a June 6, 2008 settlement. (Def.’s Ex. 17).
Accordingly, the court has doubts as to the veracity of Pittston’s claims that it did not know about
KDC’s breaches. At the very least, the prior settlement may suggest that Pittston was on notice
about KDC’s previously inadequate performance under the Lease.
-22-

during that time. Pittston has failed to carry its burden and establish, as a matter of law, that
Kanawha-Gauley was required to provide Pittston with additional notice of KDC’s breach.
During trial, Pittston also asserted that, under the same duty of good faith owed to a surety,
Kanawha-Gauley was obligated to allow KDC to assign the Lease and allow the assignee to cure the
defaults. Pittston argued that the Lease should have been assigned as part of the bankruptcy
proceeding in Kentucky and that such an assignment would have cured KDC’s defaults and relieved
Pittston of liability. First, as a factual matter, Kanawha-Gauley terminated the Lease on June 19,
2009, before the July 29, 2009 filing of the involuntary bankruptcy petition, meaning the Lease was
not part of the bankruptcy estate. On September 29, 2009, the Bankruptcy Judge signed an order to
that effect, confirming that the Lease was not part of the bankruptcy estate.14 Nevertheless, Pittston
continues to maintain that Kanawha-Gauley was required to allow the Lease to be included in the
estate, without offering any legal authority for this novel argument—that a landlord is required by
law to allow a lease to be assigned and cured in bankruptcy, rather than terminating the Lease, after
a tenant has repeatedly breached the terms of a lease. Finally, Pittston has failed to offer any
evidence that KDC’s defaults under the Lease actually would have been cured in bankruptcy and
relieved Pittston of liability.
In summary, the court CONCLUDES that Kanawha-Gauley has established that Pittston
breached the suretyship agreement. The court further CONCLUDES that Kanawha-Gauley did not
breach the duty of good faith and fair dealing that it owed to Pittston as its surety on the Lease.
Pittston has posited a variety of hypotheticals—actions that Kanawha-Gauley could have taken,

14

The fact that Kanawha-Gauley, KDC, and other parties submitted a proposed order to the
court does not change the legal effect of an Order entered by the Bankruptcy Court.
-23-

starting with KDC’s first relevant breach in September; however, Pittston has failed to establish that
Kanawha-Gauley had any legal obligation to choose any of these hypothetical actions instead of
terminating the Lease.
3.

Damages Doctrines for Breach of Contract Claims

Having concluded that the defendant breached the contract, I now turn to the doctrines that
West Virginia courts apply in considering whether to limit a plaintiff’s damages in a breach of
contract action. These doctrines operate as affirmative defenses and may serve to limit a plaintiff’s
recovery. Accordingly, I will consider whether any of these doctrines apply before I proceed to
calculate the plaintiff’s actual damages in the final section of this Opinion.
a.

A Plaintiff is Only Entitled to the Benefit of its Bargain

First, West Virginia applies the “fundamental principle of the law of contracts that a plaintiff
is only entitled to such damages as would put him in the same position as if the contract had been
performed.” Milner Hotels, Inc. v. Norfolk W. Ry. Co., 822 F. Supp. 341, 344 (S.D. W. Va. 1993).
This rule reflects the reasoning that “[c]ontract damages are ordinarily based on the injured party’s
expectation interest and are intended to give him the benefit of his bargain by awarding him a sum
of money that will, to the extent possible, put him in as good a position as he would have been in had
the contract been performed.” Restatement (Second) of Contracts § 347 (cmt. a) (1981). Thus,
Kanawha-Gauley’s damages for its breach of contract claim are limited to those that KanawhaGauley would have received if Pittston had actually performed its contract and held Kanawha-Gauley
harmless from KDC’s breaches of the Lease.
In accordance with this damages doctrine, Pittston argues that “[i]f the court were to allow
Kanawha-Gauley to recover against Pittston Minerals in this case, Kanawha-Gauley would be in a
-24-

better position than it would have been had the lease been performed,” because “Kanawha Gauley
would have damages under the Lease and the value of the new lease.” (Def.’s Prop. Findings ¶ 35.)
The court hereby CONCLUDES that this argument is without merit. KDC breached its Lease with
Kanawha-Gauley by failing to make payments required under the Lease. These payments were due
at various points in 2008 and 2009, and when these payments were not made, Kanawha-Gauley
ultimately terminated the Lease. With the exception of attorney’s fees and interest, all of the
damages that Kanawha-Gauley seeks in this case are for debts that KDC incurred prior to the
termination of the Lease. The fact that Kanawha-Gauley subsequently entered into a new lease
agreement is simply not relevant to the instant case because Kanawha-Gauley is not seeking damages
for any debts (aside from interest) that KDC incurred after the termination of its Lease with
Kanawha-Gauley.15 Accordingly, Kanawha-Gauley will not get more than the benefit of its bargain
by recovering these payments as expectation damages. (Trial Tr. p. 10.)
b.

A Plaintiff has a Duty to Mitigate its Damages

Second, West Virginia recognizes the general rule that a party injured by the breach of a
contract has a duty to mitigate its damages. Cont’l Realty Corp. v. Andrew J. Crevolin Co., 380 F.
Supp. 246, 255 (D. W. Va. 1974). “Mitigation of damages is an affirmative defense, and its burden
is entirely on the contract breaker.” Martin v. Bd. of Ed. Of Lincoln Cnty., 199 S.E. 887, 889 (W.
15

Kanawha-Gauley’s new lease agreement is not relevant to the instant case because
Kanawha-Gauley is not seeking to recover any post-breach damages (aside from interest and
attorney’s fees). I note, however, that this new lease perhaps undercuts Pittston’s mitigation
argument. If Kanawha-Gauley had not entered into a new lease and had, instead, continued to allow
its tenant (KDC) to breach the lease and subsequently sought to recover damages from either KDC
or Pittston, (perhaps in the form of the minimum monthly royalty required under the Lease) it is
likely that Pittston would have accused Kanawha-Gauley of failing to mitigate its damages. As it
happens, Kanawha-Gauley entered into a new lease, which prevented it from incurring additional
damages at the hands of a defaulting tenant.
-25-

Va. 1938). This duty, also termed the doctrine of avoidable consequences, “imposes upon a party
injured by another’s breach of contract or tort the active duty of using all ordinary care and making
all reasonable exertions to render the injury as light as possible.” Griffith v. Blackwater Boom &
Lumber Co., 48 S.E.442, 450 (W. Va. 1904). Williston on Contracts notes that, while “it has been
said that a plaintiff is ordinarily under a duty to mitigate damages,this is not strictly true, since there
are no damages for breach of the duty; rather, the plaintiff simply cannot recover those damages that
it could have avoided.” 24 Williston on Contracts § 64:27 (4th ed. 2011) The Restatement (Second)
of Contracts summarizes the duty as follows:
Once a party has reason to know that performance by the other party will not be
forthcoming, he is ordinarily expected to stop his own performance to avoid further
expenditure. Furthermore, he is expected to take such affirmative steps as are
appropriate in the circumstances to avoid loss by making substitute arrangements or
otherwise.
Restatement (Second) of Contracts § 350 (cmt. b) (1981).

The duty to mitigate damages

“presupposes an ability to mitigate.” Cont’l Realty Corp, 380 F. Supp. at 255 Accordingly, the duty
is not triggered until there is a material breach of the underlying agreement because, until a breach
occurs, a plaintiff has no damages to mitigate. See S. Nat. Bank of Houston v. Tri Fin. Corp., 317
F. Supp. 1173, 1185 (D. Tex. 1970).
The “duty” to mitigate is of a limited scope in that “an injured party is responsible for doing
only those things which can be accomplished at a reasonable expense and by reasonable efforts.”
Middle-West Concrete Forming & Equip. Co. v. Gen. Ins. Co., 267 S.E.2d 742, 747 (W. Va. 1980).
The Restatement provides that “damages are not recoverable for loss that the injured party could
have avoided without undue risk, burden or humiliation,” however, this rule does not preclude an
injured party’s recovery “to the extent that he has made reasonable but unsuccessful efforts to avoid
-26-

loss.” Restatement (Second) of Contracts § 350 (1981). “Moreover, a plaintiff is not under a duty
to mitigate damages if the other party, who had the duty to perform under the contract, had equal
opportunity to perform and equal knowledge of the consequences of nonperformance.” Smithson
v. U.S. Fidelity & Guar. Co., 411 S.E.2d 850, 860 (W. Va. 1991). Thus, the duty to mitigate is
properly characterized as a limitation on damages and simply prevents a plaintiff from recovering
damages that it could reasonably have prevented without incurring additional cost, risk, or burden.
Pittston asserts that Kanawha-Gauley failed, in several respects, to mitigate its damages and
that this is an affirmative defense, relieving Pittston of all liability for its breach of the suretyship
agreement. First, Pittston contends that Kanawha-Gauley failed to mitigate when it failed to enforce
its landlord’s lien against property that KDC left on the leased premises. Second, Pittston asserts
that Kanahwa-Gauley “could have mitigated its damages by allowing the Lease to be assigned and
cured,” however, Kanawha-Gauley “terminated the lease and made a new lease with the Massey
subsidiary.” (Def.’s Prop. Findings ¶ 33.)
The court hereby CONCLUDES that Kanawha-Gauley fulfilled its duty to mitigate its
damages by making reasonable efforts to avoid incurring additional losses. First, Kanawha-Gauley
contacted KDC regarding breaches of the Lease and the evidence in the record suggests that KDC
at least made initial efforts to pay Kanawha-Gauley the past due payments. There is evidence in the
record which suggests that Kanawha-Gauley, KDC, and the other players had negotiated settlements
of KDC’s prior breaches under the Lease on at least one other occasion. Pursuant to the fourth
amendment to the Lease, Kanawha-Gauley also imposed additional late payment penalties on KDC,
which added additional protection for Kanawha-Gauley should KDC continue to make late
payments. Finally, when Kanawha-Gauley determined that KDC had sufficiently breached the
-27-

Lease, Kanawha-Gauley provided both KDC and Pittston with the required notice and proceeded to
terminate the Lease. Kanawha-Gauley then entered into a new lease agreement. Thus, KanawhaGauley avoided incurring additional losses that it would have incurred by keeping KDC as a
defaulting tenant.
For the purposes of Pittston’s landlord’s lien argument, I will assume for the sake of
argument that Kanawha-Gauley had a valid and enforceable landlord’s lien over some tangible
property (equipment and coal) on the leased premises at the time of KDC’s breaches. I will further
assume that Kanawha-Gauley could have enforced this lien by taking some affirmative action and,
further, that enforcing this lien would have allowed Kanawha-Gauley to recoup some, if not all, of
the debts incurred by KDC under the Lease.16 Taking all of this as true, even in light of my prior
holding on this defense at summary judgment [Docket 81], I nevertheless CONCLUDE that
Kanawha-Gauley did not, under the duty to mitigate, have a legal duty to enforce any such lien. As
discussed above, the duty to mitigate requires only that an injured party take reasonable steps to
avoid further losses, and Kanawha-Gauley did precisely that by working on a payment plan with its
tenant, KDC, and, ultimately terminating the Lease rather than allowing KDC to incur additional
debts under the Lease. The duty to mitigate did not require Kanawha-Gauley to institute a separate,
and likely costly, legal proceeding against its tenant to enforce this landlord’s lien.
In sum, I CONCLUDE that Pittston has failed to establish that either the doctrine limiting
damages to the “benefit of the bargain” or the injured party’s duty to mitigate its damages limits the
16

Because of these assumptions, I need not address the unresolved factual issues that would
otherwise be necessary for Pittston to prevail on this defense. Namely, the ownership and value of
the property subject to the lease. Accordingly, the defendant’s expert witness whose proffered
testimony went to the value of these items and thus the value of the lien, is not relevant to my
decision.
-28-

plaintiff’s recovery. Kanawha-Gauley fulfilled its duty to mitigate its damages and further that
Kanawha-Gauley will not be unjustly enriched or doubly recover for damages that KDC incurred
prior to the termination of the Lease. It is hereby ORDERED that judgment be entered in favor of
the plaintiff on Count One, the breach of contract claim. The amount of damages to be awarded on
this claim are discussed below.
B.

COUNT TWO - ESTOPPEL

In addition to its breach of contract claim, Kanawha-Gauley also asserts, in an independent
count, that “[i]n the alternative to the relief requested in Count One, Pittston should be estopped
from disclaiming its obligations under the Lease and the Pittston agreement, and should be bound
by those obligations.” (Compl. ¶ 25.) It is well-settled under West Virginia law that “there can only
be one recovery of damages for one wrong or injury.” Kessel v. Leavitt, 511 S.E.2d 720, 768 (W.
Va. 1998) (internal quotation marks omitted). “A plaintiff may not recover damages twice for the
same injury simply because he has two legal theories.” Id. As discussed above, this court has
already found for Kanawha-Gauley on Count One, the breach of contract claim, and Count Two
seeks the same recovery under an alternative legal theory. Accordingly, the court need not address
the alternative arguments raised in Count Two.
IV.

FINDINGS ON DAMAGES
During trial, Kanawha-Gauley informed the court that it was no longer pursuing its “missing

coal” or “lost coal” claims or seeking damages thereunder. (Trial Tr. p. 7.) Accordingly, KanawhaGauley is seeking the following categories of damages: (1) unpaid royalties; (2) interest and late fees
on unpaid royalties; (3) interest and fees on late royalty payments; (4) unpaid real estate taxes plus
interest; and (5) attorneys’ fees incurred in pursuing this action. As an evidentiary matter, Pittston
-29-

objected during trial to the admission of Plaintiff’s Exhibit 15, which provided a series of charts
detailing Kanawha-Gauley’s alleged damages. The court has not relied on this Exhibit, which is
simply a summary, but rather has independently calculated the damages in each category based on
other evidence in the record.
A.

Past Due Royalty Payments, Interest, and Fees
1.

Late and Unpaid Royalty Payments

As of September 25, 2009, when Kanawha-Gauley filed the instant suit, Kanawha-Gauley
was owed $1,047,194.42 in past due payments. The court FINDS that Kanawha-Gauley has
provided royalty statements in support of these damages and thus has established these damages
beyond a preponderance of the evidence. Pittston has not offered any evidence or argument with
respect to these damages. Accordingly, the court hereby AWARDS damages to the plaintiff in the
amount of $1,047,194.42 for unpaid royalty payments.
2.

Interest on Late and Unpaid Royalty Payments

Kanawha-Gauley also seeks to recover interest on the unpaid royalty amounts and on the late
payments made for the production months of November 2008 and December 2009. The court
FINDS that plaintiff has established that, pursuant to the Lease, it is entitled to interest at a rate of
5.25% per annum on the late payments, running from the date that each payment was due. (Pl.’s Ex.
1, at 13.) Pittston has not disputed either that Kanawha-Gauley is entitled to interest under the Lease
or that the appropriate interest rate is 5.25%. Accordingly, the court hereby AWARDS damages to
the plaintiff for interest on the late payments and unpaid payments, as calculated below.
First, with respect to liquidated damages for interest on the late payments in 2009, the court
FINDS that the plaintiff is entitled to recover $2,166.11. Second, pursuant to my earlier findings
-30-

of fact, interest on the unpaid payments is to be calculated at a rate of 5.25%, running from the
payment’s due date until the entry of this judgment. See Drovers Bank of Chicago v. Nat’l Bank and
Trust Co. Of Chariton, 829 F.2d 20, 22-23 (8th Cir. 1987). These interest damages are calculated
as follows: (1) interest on the $571,274.84 unpaid balance for the production month of December
2008, accrued over 907 days from the due date of January 25, 2009 in the amount of $82.17 a day
for a total of $74,528.19; (2) interest on the $179,922.01 unpaid balance for the production month
of January 2009, accrued over 876 days from the due date of February 25, 2009 in the amount of
$25.88 per day for a total of $22,670.88; (3) interest on the $91,840.54 unpaid balance for the
production month of February 2009, accrued over 848 days from due date of March 25, 2009 in the
amount of $13.21 per day for a total of $11,202.08; (4) interest on the $113,680.78 unpaid balance
for the production month of March 2009, accrued over 817 days from the due date of April 25, 2009
in the amount of $16.35 per day for a total of $13,357.95; (5) interest on the $71,052.00 unpaid
balance for the production month of April 2009, accrued for 787 days from the due date of May 25,
2009 in the amount of $10.22 per day for a total of $8,043.14; (6) interest on the $19,182.18 unpaid
balance for the production month of May 2009, accrued for 756 days from the due date of June 25,
2009 in the amount of $2.76 per day for a total of $2,086.56; and (7) interest on the $242.07 unpaid
balance for the partial production month of June 2009 (until June 19, 2009), accrued over 726 days
from the due date of July 25, 2009 in the amount of $0.035 a day for a total of $25.41. The court
FINDS that the interest on unpaid royalties totals $131,914.21. Accordingly, the court hereby
AWARDS Kanawha-Gauley $134,080.32 in damages for unpaid interest on late and unpaid
royalties.
3.

Late Payment Penalty Charges
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Second, Kanawha-Gauley also seeks to recover late payment penalties pursuant to the fourth
amendment to the Lease. Pittston asserts that it is not required to pay these penalties because
Pittston was not a party to the fourth amendment to the Lease. (Trial Tr. p. 67.) Although Pittston
was not a party to the fourth amendment, in its Agreement with Kanawha-Gauley, Pittston “agreed
that it “consents in advance to any modification of this lease and that its liability shall be deemed
modified in accordance with any such modification.” (Pl.’s Ex. 1, at 46.) Pittston also explicitly
agreed that its consent was not required to “make any such agreement, modification or supplements
[to the Lease] effective.” (Id.) Accordingly, the court CONCLUDES that Pittston’s liability was
modified by the fourth amendment to the Lease even though Pittston was not a signatory party to that
amendment. With respect to late payment penalty charges, the fourth amendment provides as
follows:
Any payment required to be paid to the Lessor hereunder that is not paid on or before
its due date as herein specified shall, in addition to interest thereon, bear a penalty
charge of Two Hundred Dollars ($200.00). Notwithstanding the foregoing, Lessee
shall NOT be required to pay more than Five Hundred Dollars ($500.00) in penalty
charges in any given month or portion of a month.
(Pl’s Ex. 1, at 71.) Kanawha-Gauley seeks to recover late payment penalties for each and every
month in which royalties were late or unpaid, beginning with January 2008.

The court

CONCLUDES that Kanawha-Gauley has failed to establish that it is entitled to late payment
penalties for the months of January 2008 through November 2008. The court further CONCLUDES
that Kanawha-Gauley has established that it is entitled to damages for late payments for the
remaining months beginning with December 2008 and accumulating until the entry of this judgment.
Accordingly, the court hereby AWARDS damages to the plaintiff for late payment penalties

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pursuant to the terms set forth in the fourth amendment to the Lease, in the amount of $500 per
month, over a period of 31 months, for a total of $15,500.
B.

Taxes

Article IV of the Lease provides that the lessee shall “promptly pay when and as the same
become due and payable all valid taxes.” (Pl.’s Ex. 1, at 14.) Accordingly, KDC was not obligated
to make any payments under this article of the Lease until and unless the relevant taxes were due to
the appropriate local, state, or federal entity. The court FINDS that Kanawha-Gauley terminated the
Lease on June 19, 2009, and, therefore, KDC would only have been responsible for taxes due and
payable before June 19, 2009. Pittston, as KDC’s surety, is only liable for unpaid taxes to that same
extent. When a party actually paid the taxes is irrelevant; the sole inquiry is when the taxes were
due. The notice that Kanawha-Gauley sent demanding that KDC cure the tax defaults stated that the
taxes for the 2008 year were due on a bi annual basis, with taxes for the first half of a year due on
September 1 and taxes for the second half of the year due on February 1 of the following year.
(Def.’s Ex. 10.) As Kanawha-Gauley has not provided any evidence to contradict or augment the
schedule set forth in this notice, the court FINDS that this is the general payment schedule for the
tax payments required under the lease.
In its Proposed Findings, Kanawha-Gauley indicates that it paid all of the taxes due under
the lease for 2008 on July 30, 2008, however the tax receipts provided as Plaintiff’s Exhibit 1417
indicate that these taxes were actually paid on July 24, 2009. (Pl.’s Ex. 14.) According to these
17

At trial, counsel for the defendant stated that he “had questions” as to the admissibility of
Plaintiff’s Exhibit 14. (Trial Tr. p. 60.) The first “question” was whether these tax receipts were for
the leased property. The court hereby FINDS that Mr. Bozorth’s testimony establishes that these
tax receipts were for the leased property. (Trial Tr. p. 61.) The second “question” is no longer
relevant because it dealt with 2009 taxes, which the court has held are not recoverable.
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receipts, these taxes for the year 2008 totaled $212,889.89.18 (Id.) Kanawha-Gauley is not entitled
to recover damages for any taxes incurred in 2009 because those taxes were not “due and payable”
during the term of the lease. In addition, Kanawha-Gauley has not cited to any provision in the
Lease or otherwise established that it is entitled to assess interest on the unpaid taxes.19 Accordingly,
the court AWARDS damages to the plaintiff in the amount of $212,889.89 for unpaid taxes.
C.

Attorneys’ Fees

Finally, Kanawha-Gauley also seeks to recover the attorney fees that it incurred in pursuing
Pittston’s obligations under the contract, including the costs of this litigation. Kanawha-Gauley
asserts that it is entitled to attorneys’ fees and costs under the language in the agreement wherein
Pittston agreed to “hold lessor [Kanawha-Gauley] harmless from any cost, charge, expense, or loss
due to default under this lease by Kanawha Development Corporation.” (Pl.’s Ex. 1, at 46.) Pittston
disputes that Kanawha-Gauley is entitled to attorneys’ fees under the agreement.
West Virginia recognizes the “general rule [that] each litigant bears his or her own attorney’s
fees absent a contrary rule of court or express statutory or contractual authority for reimbursement.”
Sally-Mike Prop. v. Yokum, 365 S.E.2d 246, 248 (W. Va. 1986). In Harris v. Allstate Ins. Co., 540
S.E.2d 576 (W. Va. 2000), the Supreme Court of Appeals of West Virginia ruled that an
indemnification language in the agreement between the parties “unambiguously provide[d] for the

18

This figure represents the total amount paid on the outstanding tax liability and includes
interest assessed by the Fayette County Tax Office for late payments. (Pl.’s Ex. 14.)
19

Kanawha-Gauley requests interest on the unpaid taxes at a rate of 5.25% without citing to
any specific provision in the lease allowing for this interest. To the extent that Kanawha-Gauley is
relying on Article III of the lease, which provides for interest on unpaid royalty payments, Article
III only assesses interest on payments “not promptly made by Lessee to the Lessor.” (Pl.’s Ex. 1, at
13.) Pursuant to Article IV of the lease, KDC was to pay the taxes to the appropriate collecting
entity, not to the Lessor Kanawha-Gauley. (Id. at 14.)
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recovery of attorney fees and costs associated with the underlying action.” Id. at 579 (emphasis in
original). In Harris, the indemnity language provided, in relevant part:
In the event that [VWA] or [Allstate] is party to or defendant in any litigation, claim,
or other action resulting from [VWA’s] efforts to recover [Allstate’s] claims, [VWA]
agrees to defend, indemnify and hold [Allstate] harmless from and against any and
all judgments, awards, liabilities, settlements, or other costs arising from such
litigation, claim, or other action.
Id. n. 12. The indemnity language it issue specifically provided for the payment of fees and costs
associated with claims and litigation. The language in the present case is not nearly so explicit. The
provision cited by Kanawha-Gauley not only fails to make any mention of claims or litigation, but
it also ties the losses to a default by the lessor KDC, rather than Pittston’s failure to perform under
its surety agreement. Although KDC’s default under the lease is a “but-for” cause of KanawhaGauley’s legal fees, I CONCLUDE that the agreement between Kanawha-Gauley and Pittston does
not unambiguously provide for the recovery of attorney fees and costs. Accordingly, I CONCLUDE
that Kanawha-Gauley has not established that it is entitled to recover damages for its costs incurred
in pursuing this action, including attorneys’ fees.
V.

JUDGMENT
For the foregoing reasons, the court hereby ORDERS that judgment be entered in favor

of the plaintiff, Kanawha-Gauley Coal & Coke Company, against the defendant, Pittston Minerals
Group, Incorporated. The court further ORDERS that the plaintiff is AWARDED judgment in the
following amount: (1) $1,047,194.42 for unpaid royalty payments; (2) $134,080.32 for unpaid
interest on late and unpaid royalties; (3) $15,500 for late payment penalties; (4) $212,889.89 for
unpaid taxes, for a total judgment of $1,409,664.63.

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The court DIRECTS the Clerk to send a copy of this Order to counsel of record and any
unrepresented party.
ENTER:

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July 22, 2011