IRENE M. KEELEY, District Judge.
For the reasons stated on the record during the scheduling conference, and for the reasons discussed below, the Court
On December 1, 2017, the plaintiffs, Margaret Anne Wickland, as Trustee for and on Behalf of an Irrevocable Trust Established December 23, 1974, and Revocable Trust Established August 23, 1985, and Guy Corporation filed this action against American Mountaineer Energy, Inc. ("AMEI"), and Murray Energy Corporation ("Murray") (Dkt. No. 1). The facts are taken from the complaint and construed in the light most favorable to the plaintiffs.
The plaintiffs are the sole owners of two grants of right, title, and interest in and to the mineable and merchantable Pittsburgh vein or seam of coal underlying two parcels of land in Harrison County, West Virginia ("the Premises"). The plaintiffs or their predecessors in interest originally leased the Premises in 1958 and 1962. On September 12, 2008, however, AMEI became the lessee of the Premises pursuant to the assignment of a Consolidated, Amended and Restated Lease ("Lease") (Dkt. Nos. 17-1; 17-2). That same day, Murray agreed to guarantee AMEI's performance under the Lease (Dkt. No. 17 at 6).
The Lease had a primary term of 20 years, and the parties agreed that part of the consideration was the lessee's "commitment to promptly commence and actively pursue coal mining operations on the Leased Premises in order to maximize the benefits of the current coal market conditions" (Dkt. No. 17-1 at 21). To that end, the Lease imposed the following schedule on AMEI:
The Lease also contemplated annual "advance recoupable production royalties" in the amount of $1,000,000 or $2,000,000 beginning in 2008. These royalties were not intended to be penalties against AMEI, but rather were "compensation to Lessors for the delay in receiving Production Royalties . . . which were reasonably anticipated to have been paid if Lessee had timely performed such conditions and obligations."
In the event that the Lease terminated, AMEI agreed "to cooperate in the timely transfer and/or assignment of any and all permits, licenses, etc. required for mining or operation to Lessors or to its designated assignee upon Lessor's request therefore, to the extent the same are assignable or transferrable."
Finally, as relevant to the complaint, the parties "understood and irrevocably agreed that Lessee shall not have the right and shall not sell, transfer, mortgage, pledge, collateralize, pass, assign, sublease or encumber (collectively `Transfer') this Lease or any interest in the Leased Premises, in whole or in part, directly or indirectly, without the express prior written consent of Lessors which may be withheld for any reason, with or without cause, and Lessee hereby specifically and irrevocably waives and relinquishes all rights to make any Transfer without such written consent."
In 2013 and 2015 respectively, Murray acquired Consolidated Coal Company for $3.5 billion and other coal reserves from Foresight Reserves, LP for $1.37 billion. It stated by press release that the purchase would position "these companies for growth and for continued safe, low-cost coal production, utilizing the longwall mining method" (Dkt. No. 17 at 3). On August 31, 2016, Murray and AMEI advised the plaintiffs that, in order to "conserve cash," AMEI would not make the next scheduled advance royalty payment or comply with other obligations under the Lease.
When AMEI did not pay the scheduled advance royalty on September 14, 2016, the plaintiffs provided a notice of default. When neither AMEI nor Murray cured the default, the plaintiffs terminated the Lease on October 4, 2016.
In their complaint filed on December 1, 2017, the plaintiffs make three claims for relief. In Count One, the plaintiffs allege that AMEI breached the Lease by failing to make a scheduled $2,000,000 advance royalty payment on September 14, 2016; failing to mine the mineable and merchantable coal during the term of the Lease; pledging, encumbering, collateralizing, and/or otherwise transferring rights in the Lease without the plaintiffs' consent; failing to cooperate in the transfer and assignment of permits, licenses, other documents, and surface rights; and failing to provide surveys, maps, reports, drilling logs, and other documents.
The defendants answered the complaint on January 8, 2018 (Dkt. Nos. 9; 10). Pending is their motion to dismiss portions of the complaint, which the Court took up at a scheduling conference held on April 4, 2018 (Dkt. Nos. 19; 23).
Fed. R. Civ. P. 12(b)(6) allows a defendant to move for dismissal on the grounds that a complaint does not "state a claim upon which relief can be granted." When reviewing a complaint, the Court "must accept as true all of the factual allegations contained in the complaint."
A court is "not bound to accept as true a legal conclusion couched as a factual allegation."
In deciding on a motion, the Court need not confine its inquiry to the complaint; it may also consider "documents incorporated into the complaint by reference, and matters of which a court may take judicial notice."
"A federal court exercising diversity jurisdiction is obliged to apply the substantive law of the state in which it sits."
"A valid written instrument which expresses the intent of the parties in plain and unambiguous language is not subject to judicial construction or interpretation but will be applied and enforced according to such intent." Syl. Pt. 2,
"The 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." Syl. Pt. 2,
In their motion to dismiss, AMEI and Murray identify and seek dismissal of "six specific claims" contained within the plaintiffs' allegations: 2017 Advance Royalty Claim; Failure to Mine Claim; Lost Production Royalties Claim; Surface Rights Transfer Claim; Permit Applications Transfer Claim; and Good Faith and Fair Dealing Claim. As an initial matter, the plaintiffs argue that the motion is procedurally improper because the defendants are attacking requests for relief or seeking to "prune" claims, rather than moving to dismiss any of the three counts.
First, with regard to requests for relief, the plaintiffs argue convincingly that the correct measure of damages is inappropriate for analysis on a Rule 12(b)(6) motion.
Second, arguing that distinct allegations within each count cannot be attacked separately by the defendants, the plaintiffs cite
Unlike the defendants in
The defendants argue that the plaintiffs fail to state a claim for breach of contract regarding failure to pay the advance royalty payment scheduled for September 14, 2017, nearly a year after the Lease terminated (Dkt. No. 20 at 5). According to the defendants, the plain language of the Lease does not obligate them to make royalty payments following termination of the Lease.
This argument is misplaced. In their complaint, the plaintiffs do not allege that AMEI breached the Lease by failing to make the payment scheduled for September 14, 2017, but rather that this payment was not made as a result of the defendants' breaches (Dkt. No. 17 at 14). Indeed, in response to the motion to dismiss, the plaintiffs concede that the September 2017 payment is a measure of damages that they allegedly incurred (Dkt. No. 21 at 10-11). Given that the nature of relief "is immaterial to the question of whether the complaint adequately states a claim upon which relief can be granted,"
The plaintiffs allege, in part, that AMEI "materially breached the Lease by failing to mine the mineable and merchantable coal during the term of the Lease as required by the Lease" (Dkt. No. 17 at 15). And, as a portion of their damages for "AMEI's material breaches," the plaintiffs seek $262,670,000 in lost production royalties.
First, the Lease clearly does not support a standalone claim, the so-called Failure to Mine Claim, that AMEI is in breach for failing to mine all coal from the Premises. In the Lease, the parties acknowledged that AMEI had a "commitment to develop" because part of the consideration for the Lease was that AMEI would "promptly commence and actively pursue coal mining operations" (Dkt. No. 17-1 at 21). To that end, the Lease imposed a schedule regarding permitting and active mining, which was eventually amended to require the operation of a longwall mining system by December 31, 2022 (Dkt. No. 17-3 at 3).
The Lease also required AMEI to follow "Best Mining Practice of a prudent coal mining operator, so that there will be no needless or avoidable loss or waste of coal" (Dkt. No. 17-1 at 19). If mineable coal was not mined, AMEI nonetheless had to pay the plaintiffs a production royalty on it.
In the context of the entire Lease, it is clear that the parties did not contemplate such an obligation. For instance, the obligation to mine all mineable coal or pay a production royalty remained subject to "all other provisions of this Lease" (Dkt. No. 17-1 at 19). One of those provisions was that AMEI did not have to commence operation of a longwall mining system until December 31, 2022, more than six years after the plaintiffs elected to terminate the Lease for non-payment of the 2016 advance royalty. It follows that, when the Lease terminated, so did AMEI's obligation to mine coal and to pay a production royalty for unmined coal.
Moreover, the Lease expressly provides that the plaintiffs retain advance production royalties in the event that the Lease terminates, but contains no such provision for the payment of royalties on unmined coal.
Second, the plaintiffs' Lost Production Royalties Claim is a statement of the damages flowing from AMEI's alleged breaches, not a freestanding claim (Dkt. No. 17 at 17-18). Much like the defendants' argument regarding the 2017 Advance Royalty, the contention that this calculation "fails to state a claim" is an inappropriate attack on the plaintiffs' request for relief.
The defendants also contend that any claim for breach of the covenant of good faith and fair dealing should be dismissed because the plaintiffs do not assert that AMEI exercised a discretionary action in bad faith (Dkt. No. 20 at 12-13). The plaintiffs argue that whether AMEI intentionally breached the Lease in bad faith by failing to pay the 2016 advance royalty is a factual question suited for further development (Dkt. No. 21 at 21-22).
"West Virginia law `implies a covenant of good faith and fair dealing in every contract for purposes of evaluating a party's performance of that contract.'"
The covenant does not give rise to a separate and independent cause of action, but rather sounds in breach of contract.
Here, the plaintiffs allege that "AMEI has breached the Lease and its implied covenant of good faith and fair dealing by violating" various express provisions of the Lease related to payment of advance royalties (Dkt. No. 17 at 13-18). Despite the plaintiffs' reference to the implied covenant, they have not alleged that AMEI violated an additional duty not expressly delineated in the contract. Because the implied covenant of good faith and fair dealing cannot support rights contrary to those set out in the Lease, the plaintiffs' reliance on the implied covenant is merely duplicative.
The Lease contains the following provision:
(Dkt. No. 17-1 at 31). In Count Two, the plaintiffs allege that various permits have been issued to AMEI, and that several permit applications remain pending. They further allege that, "because AMEI chose to develop a mine plan for the mining permits that may require the permit holder to owner certain surface rights," it must transfer those surface rights in order to comply with its obligation to transfer permits and permit applications under the Lease (Dkt. No. 17 at 19-20).
"Although pled as a separate count, the relief sought in Count [Two] . . . is not an independent cause of action, but merely a possible remedy should [the plaintiffs] ultimately establish . . . a breach by [the defendants]."
The defendants contend that the Lease does not require them to transfer permit applications, as opposed to active permits (Dkt. No. 20 at 10). The Lease language, however, at best is ambiguous in this regard. The parties certainly contemplated the transfer of documents "required for mining or operation"; the inclusion of "etc." following "permits, licenses" is thus reasonably susceptible to an interpretation that would include pending permit applications if such are required for mining or operation of the Premises.
The defendants also contend that the Lease does not impose an obligation to transfer surface rights, and that no statute or regulation requires the plaintiffs to acquire AMEI's surface rights to receive transfer of permits or applications (Dkt. No. 20 at 10-12). The plaintiffs contend that "the parameters and scope of the cooperation obligations" under the Lease are inappropriate for analysis under Rule 12(b)(6) (Dkt. No. 21 at 21).
Inasmuch as the plaintiffs do not contest that the Lease and applicable law impose no express requirement that AMEI transfer surface rights, the question presented is whether the Lease is reasonably susceptible to such an interpretation. That the Lease requires the defendants to "cooperate" in the transfer of permits may reasonably be read to require them to facilitate access to the surface as contemplated by the permits and permit applications to be transferred. Whether this construction is correct is an improper question at this early stage of the parties' litigation.
For the reasons discussed, the Court
It is so
The Court directs the Clerk to transmit copies of this Memorandum Opinion and Order to counsel of record.
