Wahoowa, Inc. et al v. Consol of Kentucky, Inc. et al
Filing
70
MEMORANDUM OPINION AND ORDER directing 1) That Southeastern's 51 motion for leave to file a surreply is granted; 2) That the surreply filed attached as Exhibit 1 to Southeastern's motion is deemed filed; 3) That defendants' 57 moti on for summary judgment is denied without prejudice; and 4) That plaintiffs' 40 motion for summary judgment is denied without prejudice. Signed by Judge John T. Copenhaver, Jr. on 5/8/2019. (cc: counsel of record; any unrepresented parties) (kew)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF WEST VIRGINIA
AT CHARLESTON
WAHOOWA, INC., and
SUVAC, INC.,
Plaintiffs,
v.
Civil Action No. 2:17-cv-4422
CONSOL OF KENTUCKY, INC.
(fka Consol of Kentucky, LLC),
CNX RESOURCES CORPORATION
(fka Consol Energy, Inc.), and
SOUTHEASTERN LAND, LLC,
Defendants.
MEMORANDUM OPINION AND ORDER
Pending 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, Inc.1 (“COK”), CNX Resources Corp.2
(“CONSOL Energy”),
and Southeastern Land, LLC (“Southeastern”), filed January 15,
2019.
1
COK states that CONSOL of Kentucky, Inc. was converted into
CONSOL of Kentucky, LLC, a single member limited liability
company owned by CONSOL Energy, Inc., in 2017. Defs.’ Mem.
Supp. Mot. Summ. J. (“Defs.’ Mem.”), ECF No. 58, at 1 n.1. The
names of this same entity as set forth in the case caption are
reversed.
2 The second amended complaint, filed December 28, 2018, replaces
Consol Energy, Inc. with CNX Resources Corp. as a defendant. It
appears that CNX Resources has simply taken the place of Consol
Energy, Inc. in this litigation, although neither has filed an
answer to the second amended complaint.
I.
Background
On 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.
As a 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.
2
On 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 ¶ 910.
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.
On July 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.
Wahoowa 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.”
55, at ¶ 17.
3
Second Am. Compl., ECF No.
Section 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.
Lease Agreement, ECF No. 41-1, at 14-15.
Section 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
4
(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.
The 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
“Lessee” does not have the same partners that the Lessee had as
5
of the date of the lease, the “Lessee, so long as” terms are
inoperative.
Defendants removed this matter to this court on
November 29, 2017, pursuant to 28 U.S.C. § 1332.
The plaintiffs’ motion for declaratory judgment, which
the court treats as a motion for summary judgment,3 asks the
court to declare COK’s assignment of the Lease to Southeastern
invalid and that “COK is now, and has been since August 1, 2016,
the lessee of the Lease.”
Pls.’ Mot. Declaratory J., ECF No.
40, at 4; Pls.’ Mem. Supp. Mot. Declaratory J. (“Pls.’ Mem.”),
ECF No. 41, at 12.
COK and CONSOL Energy responded jointly to
plaintiffs’ motion, and Southeastern did so separately.
3
“[A] party may not make a motion for declaratory relief, but
rather, the party must bring an action for declaratory
judgment.” Thomas v. Blue Cross & Blue Shield Ass’n, 594 F.3d
823, 830 (11th Cir. 2010) (emphasis in original) (citation
omitted). Here, the plaintiffs assert that the relevant facts
are clear, based on the language of the Lease, and that courts
have construed such motions for declaratory judgment as motions
for summary judgment. See Alston v. Va. High Sch. League, Inc.,
144 F. Supp. 2d 526, 529 (W.D. Va. 1999). The court notes that
COK and CONSOL Energy argue that plaintiffs’ motion is improper
under the federal rules. COK & CONSOL’s Resp., ECF No. 47, at 34. While this is true, the court may rule on the motion as if
it is a motion for summary judgment for the reasons discussed
above.
6
Plaintiffs have replied to each response, and Southeastern
subsequently filed a surreply.4
The plaintiffs, in their first amended complaint,
inadvertently omitted two paragraphs that were included in the
original complaint which asked 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,” Compl., ECF No. 49-1, ¶ 17, and to “prescribe a
proper and appropriate remedy allowed by law to correct the
inappropriate assignment . . . ,” id. at ¶ 18.
The court
permitted the plaintiffs to correct this omission by filing the
second amended complaint on December 28, 2018, which included,
among other minor amendments, those previously omitted
paragraphs.
ECF No. 54.5
On January 15, 2019, defendants filed a joint motion
for summary judgment.
The plaintiffs have since filed a
response to which the defendants have replied. In these
briefings, the parties incorporate several arguments made in the
4
Inasmuch as Southeastern’s motion to file a surreply has not
been objected to and it addresses new arguments that plaintiffs
raised in their reply, the court grants Southeastern’s motion.
5 Defendants COK and CONSOL Energy first argue in their response
in opposition to plaintiffs’ motion that plaintiffs seek relief
that was not raised in the first amended complaint. COK &
CONSOL’s Resp., ECF No. 47, at 5-6. However, the permitted
amendment cures this defect and renders this argument moot.
7
briefings of plaintiffs’ motion for declaratory judgment
(hereinafter “plaintiffs’ motion for summary judgment”).
II.
Standard of Review
A party is entitled to summary judgment “if the
pleadings, the discovery and disclosure materials on file, and
any affidavits show that there is no genuine issue as to any
material fact and that the movant is entitled to judgment as a
matter of law.”
Fed. R. Civ. P. 56(c).
Material facts are
those necessary to establish the elements of a party’s cause of
action.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986).
A court must neither resolve disputed facts nor weigh
the evidence, Russell v. Microdyne Corp., 65 F.3d 1229, 1239
(4th Cir. 1995), nor make determinations of credibility.
Sosebee v. Murphy, 797 F.2d 179, 182 (4th Cir. 1986).
Rather,
the party opposing the motion is entitled to have his or her
version of the facts accepted as true and, moreover, to have all
internal conflicts resolved in his or her favor.
Charbonnages
de France v. Smith, 597 F.2d 406, 414 (4th Cir. 1979).
Inferences that are “drawn from the underlying facts . . . must
be viewed in the light most favorable to the party opposing the
8
motion.”
United States v. Diebold, Inc., 369 U.S. 654, 655
(1962).
III. Applicable Law
In cases grounded in diversity jurisdiction, “federal
courts are to apply the substantive law the State in which they
are sitting would apply if the case had originated in a State
court.”
Stonehocker v. Gen. Motors Corp., 587 F.2d 151, 154
(4th Cir. 1978).
Further, Section 47 of the Lease provides that
“[t]his Lease shall for all purposes be governed by and
construed in accordance with the laws of the State of West
Virginia.”
Lease Agreement, ECF No. 41-1, at 40.
The Court of Appeals for the Fourth Circuit has
observed that the matter of “[c]ontract interpretation is a
subject particularly suited for summary judgment disposal.”
Bank of Montreal v. Signet Bank, 193 F.3d 818, 835 (4th Cir.
1999).
It has also been observed repeatedly, however, that
“[a]n ambiguous contract that cannot be resolved by credible,
unambiguous, extrinsic evidence discloses genuine issues of
material fact . . . [and] summary judgment is inappropriate.”
Sempione v. Provident Bank of Md., 75 F.3d 951, 959 (4th Cir.
1996).
Expanding upon this analysis, the Fourth Circuit has
stated:
9
Only an unambiguous writing justifies summary judgment
without resort to extrinsic evidence, and no writing
is unambiguous if “susceptible to two reasonable
interpretations.” American Fidelity & Casualty Co. v.
London & Edinburgh Ins. Co., 354 F.2d 214, 216 (4th
Cir. 1965).... If a court properly determines that the
contract is unambiguous on the dispositive issue, it
may then properly interpret the contract as a matter
of law and grant summary judgment because no
interpretive facts are in genuine issue. Even where a
court, however, determines as a matter of law that the
contract is ambiguous, it may yet examine evidence
extrinsic to the contract that is included in the
summary judgment materials, and, if the evidence is,
as a matter of law, dispositive of the interpretative
issue, grant summary judgment on that basis. See
Jaftex Corp. v. Aetna Casualty and Surety Co., 617
F.2d 1062, 1063 (4th Cir. 1980). If, however, resort
to extrinsic evidence in the summary judgment
materials leaves genuine issues of fact respecting the
contract's proper interpretation, summary judgment
must of course be refused and interpretation left to
the trier of fact.
Goodman v. Resolution Trust Corp., 7 F.3d 1123, 1126 (4th Cir.
1993) (quoting World–Wide Rights Ltd. Partnership v. Combe Inc.,
955 F.2d 242, 245 (4th Cir. 1992)).
Further, “[i]f there is
more than one permissible inference as to intent to be drawn
from the language employed, the question of the parties' actual
intention is a triable issue of fact.”
Atalla v. Abdul-Baki,
976 F.2d 189, 192 (4th Cir. 1992) (quoting Bear Brand Hosiery
Co. v. Tights, Inc., 605 F.2d 723, 726 (4th Cir. 1979)).
10
The Supreme Court of Appeals of West Virginia has
similarly stated:
Where the terms of a contract are clear and
unambiguous, they must be applied and not construed.
Stated another way, [i]t is not the right or province
of a court to alter, pervert or destroy the clear
meaning and intent of the parties as expressed in
unambiguous language in their written contract or to
make a new or different contract for them. Moreover, a
contract is not rendered ambiguous merely because the
parties disagree as to its construction. As expressed
by this Court in Syllabus point 1 of Berkeley County
Public Service District v. Vitro Corp. of America, 152
W.Va. 252, 162 S.E.2d 189 (1968), “[t]he mere fact
that parties do not agree to the construction of a
contract does not render it ambiguous. The question as
to whether a contract is ambiguous is a question of
law to be determined by the court.”
Perrine v. E.I. du Pont de Nemours & Co., 225 W. Va. 482, 50708, 694 S.E.2d 815, 840-41 (2010) (internal quotations and
citations omitted).
“Contract language usually is considered ambiguous
where an agreement's terms are inconsistent on their face or
where the phraseology can support reasonable differences of
opinion as to the meaning of words employed and obligations
undertaken.”
Fraternal Order of Police, Lodge No. 69 v. City of
Fairmont, 196 W. Va. 97, 101, 468 S.E.2d 712, 716 (1996).
“If
language in a contract is found to be plain and unambiguous,
such language should be applied according to such meaning.”
Additionally, “the language of a lease agreement must be
11
Id.
considered and construed as a whole, giving effect, if possible,
to all parts of the instrument. Accordingly, specific words or
clauses of an agreement are not to be treated as meaningless, or
to be discarded, if any reasonable meaning can be given them
consistent with the whole contract.”
Syl. Pt. 3, Moore v.
Johnson Serv. Co., 158 W. Va. 808, 808, 219 S.E.2d 315, 317
(1975).
IV.
Discussion
As an initial matter, CONSOL Energy and COK’s response
in opposition to plaintiffs’ motion for summary judgment raises
several arguments that are no longer relevant.
Specifically,
these defendants assert that a ruling on that motion would be
premature, as full discovery had not been conducted to determine
whether any genuine issue of material fact existed as to, for
example, Southeastern’s net worth or the intent of the parties
in drafting the Lease.
7-8, 11-14.
See COK & CONSOL’s Resp., ECF No. 47, at
Now, however, full discovery has been conducted
and the deadline to file dispositive motions has passed.
None
of the parties have presented any extrinsic evidence in support
of their respective motions for summary judgment.
Initially the
defendants contended that pertinent terms of the lease were
12
ambiguous.
Each party now asserts that the terms of the Lease
are unambiguous.
While the Lease generally disfavors assignment without
the prior written consent of the Lessor, written consent is not
needed in three circumstances: (1) when assignment is made “to a
wholly-owned subsidiary or an affiliate of, which is also
controlled by, Consol Energy, Inc.”; (2) when assignment is made
“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 (3) when assignment is made
to a “third party with reasonable experience in the mining,
marketing, and processing of coal if Consol Energy, Inc. . . .
guarantees the performance of the terms and provisions of this
Lease by such third-party assignee.”
Lease Agreement, ECF No.
41-1, at 23.
It is undisputed by the parties that COK did not
become the Lessee under the Lease by means of assignment, but
rather through permissible merger.
Id. (“[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).”); Defs.’ Mem.,
ECF No. 58, at 2; Pls.’ Resp. Mem., ECF No. 60, at 1.
13
First, Southeastern is not a wholly-owned subsidiary
of CONSOL Energy, nor is it in any way affiliated with CONSOL
Energy; therefore, the first exception to the written consent
requirement is not applicable.
Next, inasmuch as CONSOL Energy
did not guarantee the assignment to Southeastern, the third
exception to the written consent requirement is also
inapplicable here.
There does remain a question of fact as to the second
written consent exception.
From all appearances, Southeastern
was not worth $35 million at the time the assignment was made to
it by COK; however, no evidence has been presented by either
party related to the worth of Southeastern.
Inasmuch as the
proponent of an exception to the otherwise required written
consent should bear the burden of proof on that issue, it is the
obligation of the Consol group, if it wishes to invoke that
exception, to proceed with the production of evidence showing
that Southeastern has “reasonable experience in the mining,
marketing, and processing of coal . . . [and] . . . has a net
worth of at least $35,000,000.”
The court now turns to the third paragraph of the same
section which may be a fourth exception or may modify one or
more of the first three.
As mentioned, this paragraph states:
14
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
. . . guarantees the performance under this Lease.
Lease Agreement, ECF No. 41-1, at 23-24.
The term “lessee” – to
be distinguished from Lessee – is not defined and may have any
of a multiple of meanings.
Plaintiffs argue: “COK was the Lessee at the time of
the purported assignment to Southeastern.
COK is a Consol
Affiliate, being a wholly owned subsidiary of CONSOL.
Consequently, the condition precedent – a lessee who is not a
Consol Affiliate making the assignment – has not been met.”
Pls.’ Resp. Mem., ECF No. 60, at 3 (emphasis in original).
Presumably, plaintiffs suggest that lessee equates with or at
least includes the Lessee.
Conversely, the defendants assert that “[b]y
interpreting the term “lessee” . . . to refer to the incoming
lessee, the paragraph makes sense and the deliberate choice of
terms made by the parties is preserved.
Thus, because the new
lessee is Southeastern, not an affiliate of [CONSOL Energy], a
Consol Affiliate, here COK, must guarantee performance.
15
It has
done so.”
Defs.’ Reply, ECF No. 66, at 3.
Under the
defendants’ view, the term lessee excludes the Lessee.
The court concludes that the term “lessee” as used in
the third paragraph of Section 18a is ambiguous.
It is unclear
as to whom the term “lessee” applies in these circumstances.
Consequently, the court is unable to render judgment on either
of the parties’ cross motions for summary judgment.
V.
Conclusion
In view of the foregoing, it is ORDERED:
1. That Southeastern’s motion for leave to file a surreply,
filed October 24, 2018, be, and hereby is, granted;
2. That the surreply filed attached as Exhibit 1 to
Southeastern’s motion be, and hereby is, deemed filed;
3. That defendants’ motion for summary judgment be, and hereby
is, denied without prejudice; and
4. That plaintiffs’ motion for summary judgment be, and hereby
is, denied without prejudice.
16
The Clerk is directed to transmit copies of this
memorandum opinion and order to all counsel of record and any
unrepresented parties.
ENTER: May 8, 2019
17
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