Hanover Res., LLC v. LML Props., LLC

• Decision Date: 07 June 2019
• Docket Number: No. 17-1089,17-1089
• Court: West Virginia Supreme Court
• Parties: HANOVER RESOURCES, LLC, Petitioner v. LML PROPERTIES, LLC, et al, Respondents

242 W.Va. 9

828 S.E.2d 829

HANOVER RESOURCES, LLC, Petitioner

v.LML PROPERTIES, LLC, et al, Respondents

No. 17-1089

Supreme Court of Appeals of West Virginia.

Submitted: January 29, 2019

Filed: June 7, 2019

James A. Varner, Esq., Woodrow E. "Buddy" Turner, Esq., Samuel P. Hess, Esq., McNeer, Highland, McMunn and Varner, Clarksburg, West Virginia, Attorneys for Petitioner

John H. Mahaney, Esq., T. Matthew Lockhart, Esq., Ellen M. Jones, Esq., Dinsmore & Shohl, LLP, Huntington, West Virginia, Attorneys for Respondents

WALKER, Chief Justice:

In this case we consider the validity of $ 4.7 million in mechanic’s liens filed under West Virginia Codes § 38-2-31 and -32 (2011) by Petitioner Hanover Resources, LLC (Hanover), a provider of coal mining services, against the fee interest of a mineral estate partially owned by Respondent LML Properties, LLC (LML).¹ Considering the framework in the mechanic’s lien statutes and relevant case law along with undisputed facts in the form of stipulations by the parties regarding their contractual responsibilities, we agree with the circuit court that the mechanic’s liens at issue are invalid and affirm the circuit court’s order granting summary judgement to LML.

I. FACTS AND PROCEDURAL BACKGROUND

To evaluate the liens at issue, we first examine the parties’ thirty-five year contractual relationship. LML is the partial owner of real property containing coal in Boone County, West Virginia. LML routinely leases its properties to third-party coal operators in exchange for a royalty interest.

On September 28, 1984, LML entered into a Restatement of Lease and Other Documents (Amended Base Lease) with Cedar Coal Company (Cedar Coal) to mine LML’s coal from various seams on its Boone County property.² Under Section 5.2 of the Amended Base Lease, Cedar Coal was required to pay the greater of (a) minimum royalties, regardless of whether coal was mined, at an amount specified in the Amended Base Lease³ or (b) production royalties based upon the amount of coal mined from LML’s properties.⁴ LML received only minimum royalty payments because not enough mining occurred to trigger the payment of the production royalties. When read together, Section 5.2’s minimum royalty provision and Section 8.2’s Mine-or-Pay-Clause⁵ confirm that while mining was authorized, it was not required.

After multiple assignments over approximately thirty-five years, Patriot Coal acquired Cedar Coals’s interest in Tracts 7, 8, and 9 of the Amended Base Lease. Patriot Coal then assigned that interest to two of its subsidiaries, Kanawha Eagle Coal, LLC and Kanawha River Ventures, LLC (Patriot Subsidiaries). On February 11, 2010, the Patriot Subsidiaries entered into Coal Subleases with WWMV, LLC (WWMV), another coal operator, with respect to certain seams of coal on Tracts 7, 8, and 9.

The Coal Subleases provided that: (a) the Patriot Subsidiaries, as sublessors, were subleasing the "right to mine" certain seams of coal to WWMV;⁶ (b) the Amended Base Lease controlled with respect to any conflict or inconsistency between it and the Coal Subleases;⁷ (c) the Patriot Subsidiaries remained obligated to make direct royalty payments to LML;⁸ and (d) WWMV was not to be considered an agent or employee of the Patriot Subsidiaries or LML.⁹

Although LML was not a party to the Coal Subleases, LML, the Patriot Subsidiaries, and WWMV entered into the "Agreement, Lease Amendment, and Consent to Sublease" (Consent to Sublease) on the same day the Coal Subleases were executed. The Consent to Sublease made clear that it was not to be "construed as a novation but is merely consent to the foregoing [Coal Subleases.]" In relevant part, the Consent to Sublease also provided that: (a) LML consented to the Coal Subleases between the Patriot Subsidiaries and WWMV as required by the Amended Base Lease; (b) the Patriot Subsidiaries and WWMV would indemnify LML for matters arising from WWMV’s actions on the subleased property;¹⁰ (c) the Patriot Subsidiaries’ royalty recoupment rights under the Amended Base Lease would be temporarily modified; (d) WWMV’s rights and obligations to the subleased property were contained in the Coal Subleases; and (e) the Patriot Subsidiaries remained bound by the terms of the Amended Base Lease.

Four days later, on February 15, 2010, WWMV and Hanover entered into a Contract Mining Agreement for Hanover to provide mining services as an independent contractor for WWMV. Notably, LML was not a party to the Contract Mining Agreement and there is no evidence that LML was ever aware of its existence. The Contract Mining Agreement established an initial one-year term, followed by month-to-month renewals. Rather than establishing a contract price, it provided that WWMV and Hanover would mutually agree to labor rates. The Contract Mining Agreement also provided that: (a) Hanover would perform its work "without direction or control"; (b) Hanover would be solely responsible for paying its employees; (c) Hanover would submit weekly invoices to WWMV; and (d) after Hanover paid its employees, WWMV would then pay each weekly invoice within ten days following the receipt of each invoice. By executing the Contract Mining Agreement, Hanover acknowledged that it was provided the Amended Base Lease and Coal Subleases and consented to the terms of those agreements. Hanover further agreed that it would assume any obligations and conditions under the documents as if it were a party to them.¹¹

Pursuant to the Contract Mining Agreement, Hanover provided mining services at one of the two Patriot Subsidiaries and security services at the other. While Hanover sent WWMV weekly invoices for coal mining and security services at each mine from January 26, 2014 to September 21, 2014, WWMV did not pay them. Rather than stopping work immediately and demanding payment, Hanover claims that it continued to provide WWMV with laborers until late September of 2014 when the amount of unpaid weekly invoices totaled $ 4,757,693.82.

On December 15, 2014, Hanover recorded notices of mechanic’s liens in the amount of its unpaid invoices with the Clerk of the County Commission of Boone County against the fee interest of LML’s mineral estate. Then, Hanover filed suit against WWMV for breach of contract due to the nonpayment of the invoiced labor costs—to which WWMV confessed judgment—and against LML for enforcement of the liens. Hanover further alleged that WWMV, as a sublessee of the property, was acting as the agent for LML in entering into its contract with Hanover. During discovery, Hanover stipulated to the following: (a) it did not enter into a contract nor have any communications with LML relative to the property or work at issue; (b) it did not have a contractual relationship or any other relationship with LML before the work in question; (c) LML did not induce or promise anything to Hanover that caused Hanover to enter into a contract with WWMV; (d) LML did not induce or promise anything to Hanover that caused Hanover to provide services on the Patriot Subsidiaries’ property; (e) during the applicable time, LML did not direct or control any activities or work on the property; (f) all of Hanover’s employees were paid by Hanover during the time period in question; (g) no coal mining whatsoever took place at one of the two Patriot Subsidiaries; and (h) the royalty amounts received by LML were the same as it would have received if no coal had been mined from the Patriot Subsidiaries’ mine.

Following discovery, Hanover and LML filed cross-motions for summary judgment regarding the validity of Hanover’s mechanic’s liens. On November 15, 2017, the circuit court granted LML’s summary judgment motion and denied Hanover’s partial summary judgment motion because it found that the mechanic’s liens were invalid under West Virginia law. Additionally, the circuit court found that (a) the Coal Subleases did not change the outcome of Hanover’s claims; (b) Hanover expressly agreed that WWMV was not its agent; (c) Hanover must remove its liens against LML; (d) LML was not unjustly enriched; and (e) Hanover’s citation to extra-jurisdictional case law was inapposite and undercut its arguments. Hanover seeks relief from this Order.

II. STANDARD OF REVIEW

We review a circuit court’s entry of summary judgment under a de novo standard of review.¹² Rule 56 of the West Virginia Rules of Civil Procedure clarifies the standard for granting a motion for summary judgment and states, in pertinent part:

[t]he judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.^{[13 ]}

III. DISCUSSION

In considering Hanover’s six assignments of error,¹⁴ we note at the outset that a proponent of a lien claim must establish that its claims are lienable. In United States Blowpipe Co. v. Spencer ,¹⁵ we held that:

[t]o render a mechanic’s lien valid, it must appear upon its face that all provisions of the statute necessary to its creation have been substantially complied with, and where, by proper pleadings, a fact material and necessary to its validity is put in issue, the burden is upon the one asserting the lien to establish such fact by proof.^{[16 ]}

We have previously held that because of the harshness of the available remedies for enforcement of a mechanic’s lien, the mechanic’s lien statutes must be strictly construed when considering whether the underlying requirements have been met.¹⁷

First, we consider the question of whether Hanover has a legally valid mechanic’s lien against real property owned by LML under Chapter 38, Article 2 of the West Virginia Code. Hanover asserts that there is a valid mechanic’s lien—and that the circuit court erred in finding otherwise—because (a) WWMV was a general contractor who had a contract with LML by virtue of the Amended Base Lease, the Coal...