Covol Fuels No. 4, LLC v. Pinnacle Mining Co.

Decision Date09 April 2014
Docket NumberCivil Action No. 5:12–cv–04138.
Citation14 F.Supp.3d 724
CourtU.S. District Court — Southern District of West Virginia
PartiesCOVOL FUELS NO. 4, LLC, Plaintiff, v. PINNACLE MINING COMPANY, LLC, Defendant.

14 F.Supp.3d 724

COVOL FUELS NO. 4, LLC, Plaintiff
v.
PINNACLE MINING COMPANY, LLC, Defendant.

Civil Action No. 5:12–cv–04138.

United States District Court, S.D. West Virginia.

Signed April 9, 2014.


14 F.Supp.3d 727

Alan S. Sullivan, James D. Gardner, Jeremy J. Stewart, Snell & Wilmer, Salt Lake City, UT, Thomas V. Flaherty, Flaherty Sensabaugh & Bonasso, Charleston, WV, for Plaintiff.

Christopher D. Pence, William Scott Wickline, Hardy Pence, Debra C. Price, Guthrie & Thomas, Charleston, WV, Gregory P. Stein, Joseph A. Castrodale, Matthew T. Wholey, Paul R. Harris, Timothy James Downing, Ulmer & Berne, Cleveland, OH, for Defendant.

MEMORANDUM OPINION & ORDER

IRENE C. BERGER, District Judge.

The Court has reviewed the Defendant Pinnacle Mining Company, LLC's Motion for Summary Judgment (Document 104), filed on October 21, 2013. After careful consideration of the motion, the parties' memoranda, attached exhibits, and the entirety of the record, the Court, for the reasons stated herein, finds that the Defendant Pinnacle Mining Company, LLC's Motion for Summary Judgment should be granted.

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I. FACTUAL & PROCEDURAL HISTORY

The dispute herein arises from a strategic business alliance between two coal mining companies, Pinnacle Mining Company, LLC (Pinnacle), and Covol Fuels No. 4, LLC (Covol). Plaintiff Covol is incorporated in Utah with its principal place of business in Utah, and Defendant Pinnacle is incorporated in Delaware with its principal place of business in Ohio. (Compl. ¶¶ 9–10.) From 2008 until 2012, the parties operated under a contract providing for Covol to process the coal waste material from Pinnacle's mining operation in Wyoming County, West Virginia, into saleable coal. (Compl. ¶ 13.) Covol alleges that certain actions and omissions by Pinnacle breached the parties' contract, fraudulently and/or negligently misled Covol, and unjustly enriched Pinnacle. (See Compl.)

Pinnacle owns and operates an underground coal mine in Wyoming County, West Virginia. (Compl. ¶ 10.) Near the end of its mining process, Pinnacle utilizes a wash plant to strip and clean the mined coal of unwanted particulates, and then deposits the resulting waste (refuse material) into an adjacent impoundment pond. (Compl. ¶ 15.) Prior to the parties' written agreement, an affiliate company of Pinnacle, Beard–Pinnacle, LLC, operated a coal waste processing facility near the impoundment to clean and process the refuse material into saleable coal. (Compl. ¶ 16.)

In 2008, Covol purchased Beard–Pinnacle's assets at the Pinnacle mine, including the coal waste processing facility, for $14 million.1 (Compl. ¶ 18.) In addition, Covol assumed a lease from Beard Technologies, Inc., that allowed it to operate the coal waste processing facility. (Compl. ¶ 19.) The main business plan between Covol and Pinnacle was memorialized in a Coal Purchase and Refuse Recovery Agreement (CPRRA) dated February 15, 2008. (See Document 21–2.) The terms of the CPRRA relevant to this dispute are summarized as follows:

Section 1. Covol states its primary intention is to purchase, remove, transport, clean, and process the refuse material from Pinnacle's mine into saleable coal.

Section 4. Covol agrees to purchase and process “all or part of the Refuse Material produced, previously, currently and any in the future” from Pinnacle's mine. Covol will be responsible for transporting, storing, handling, and processing the refuse material and will do so “in such a way which does not interfere with Pinnacle's Mining Operations.”
Section 5. Covol will pay Pinnacle $1.00 per ton of saleable coal produced from Covol's refuse material processing operation.
Section 7. Both parties agree to comply in all respects with any and all laws, orders, mandates, and other governmental requirements. The parties take sole responsibility for their own compliance with all governmental requirements and any penalties for failing to do so.
Section 8. Covol must maintain and comply with the permits and licenses necessary for the operation of its coal waste processing plant. Pinnacle must “maintain its existing permits that are required for its performance under this Agreement.”
Section 10. Covol maintains complete control over its operations but must
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conduct all activities in a manner that reasonably does the least possible damage to Pinnacle's premises.
Section 12. The term of the contract is five years with a reoccurring option to renew for one year if the parties agree. Covol can unilaterally terminate the contract at any time if Covol decides the waste processing operation is no longer economically feasible.
Section 16. Either party can terminate the contract on the basis of material breach (after giving the breaching party an opportunity to cure), bankruptcy, or ceasing operations.
Section 18. Pinnacle agrees to: (1) “permit Covol to operate the Processing Facility for recovery of the Refuse Material”; (2) provide Covol with an area near the impoundment to operate its processing facility; (3) grant Covol “any right-of-way reasonably needed by Covol to transport the Refuse Material from the ponds to the processing plant”; and (4) allow Covol ingress and egress over Pinnacle's property.
Section 20. Pinnacle disclaims any express or implied warranties and representations regarding the refuse material or the suitability of Pinnacle's property for processing the refuse material.
Section 28. The CPRRA “embodies the entire understanding between the Parties with respect to the subject matter hereof” and supersedes any prior understand or other writings.

(See Document 21–2.) The CPRRA also mandates that Covol is responsible for the waste from its processing facility, identifies West Virginia as the choice of law jurisdiction, and includes terms regarding assignment, written notice, paying taxes, record-keeping, indemnification, insurance, and legal ownership and liability for the land and the refuse material. (M ) The CPRRA also references a Coal Sales Agreement between Covol and Pinnacle Coal Sales, LLC. (Compl. ¶ 23.)

Covol renovated the coal waste processing facility and, in the summer of 2008, began removing and processing refuse material from the impoundment.2 (Compl. ¶ 24.) To facilitate Covol's operations, “both Covol and Pinnacle regularly adjusted the water level in the impoundment by pumping water out” of it so that Covol could continue to access the refuse material.3 (Compl. ¶ 24.) Initially, performance under the CPRRA proceeded smoothly and the agreement proved profitable for both Covol and Pinnacle Coal Sales. (Compl. ¶ 24.)

By 2010, however, the slopes of the impoundment had become too steep for Covol to continue removing the available refuse material, so the company began an excavation project to remedy the problem. (Compl. ¶ 25.) The parties dispute whether Pinnacle encouraged Covol to excavate the impoundment, and whether Pinnacle agreed to pay for some of the expenses. (Compl. ¶ 25; Document 30 at 5.) According to Covol, Pinnacle agreed that the project was necessary, “encouraged Covol to perform the excavation work,” and “gave Covol its assurance that it would share the cost of the work evenly.” (Compl. ¶ 25.) Pinnacle disagrees, arguing that it did not request that Covol complete the excavation project, nor did it agree to pay any of the expenses. (Document 105

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at 10.) Pinnacle contends that it clearly rejected Covol's proposal to amend the CPRRA to provide that Pinnacle would share the cost of the excavation project. (M ) The parties also dispute whether Pinnacle received any benefit from the excavation project.4 (Document 105 at 10; Document 109 at 14.)

Before beginning the excavation, Covol had to obtain approval from the Mine Safety and Health Administration (MSHA) on Pinnacle's existing MSHA plan. (Document 105 at 5.) Per the revised MSHA plan, Covol intended to dredge the impoundment in six twenty-five (25) foot lifts, and anticipated that the water level in the impoundment would be lowered accordingly after each lift.5 (Id. at 6.) MSHA approved the revised plan, and Covol proceeded with the excavation project at the expense of approximately $3.5 million.6 (Compl. ¶ 26.)

Around the same time period that Covol completed the excavation project, Pinnacle made two significant changes to its mining operations. Pinnacle (1) upgraded its own wash plant, and (2) changed its water management system, defeating both companies' ability to lower or control the water level in the impoundment. (Compl. ¶¶ 27, 30.) Covol claims that the latter change made it “impossible for Covol to obtain access to the layers of coal waste that it can economically recover and process.” (Compl. ¶ 32.) These two changes, discussed in more detail below, form the basis of Covol's claims against Pinnacle.

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