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Covol Fuels No. 4, LLC v. Pinnacle Mining Co.
Citations: 14 F. Supp. 3d 724; 2014 U.S. Dist. LEXIS 49786; 2014 WL 1390857Docket: Civil Action No. 5:12-cv-04138
Court: District Court, S.D. West Virginia; April 9, 2014; Federal District Court
The Court, under District Judge Irene C. Berger, has granted the Defendant Pinnacle Mining Company, LLC’s Motion for Summary Judgment regarding a dispute with Plaintiff Covol Fuels No. 4, LLC. The conflict stems from a contractual relationship between the two coal mining companies, where Covol was responsible for processing waste coal from Pinnacle's operations in West Virginia from 2008 to 2012. Covol, a Utah corporation, asserts that Pinnacle, incorporated in Delaware, breached their contract, engaged in fraudulent or negligent misrepresentation, and was unjustly enriched. Key details include that Pinnacle operates an underground coal mine and utilizes a wash plant to clean coal, resulting in refuse material deposited into an impoundment pond. Prior to their agreement, Covol acquired assets from Pinnacle's affiliate, Beard-Pinnacle, including a coal waste processing facility, for $14 million and assumed a lease for its operation. The Coal Purchase and Refuse Recovery Agreement (CPRRA), established on February 15, 2008, outlines Covol's obligations to purchase, transport, and process refuse material into saleable coal, with Pinnacle receiving $1.00 per ton produced. Both companies are responsible for compliance with governmental regulations, with Covol maintaining necessary permits for its operations and Pinnacle required to uphold its own permits. The contract spans five years with a renewal option and allows Covol to terminate if waste processing becomes economically unfeasible, while both parties can terminate for material breaches or operational cessation after a cure opportunity. Pinnacle has agreed to allow Covol to operate a Processing Facility for Refuse Material, providing necessary operational space and rights-of-way, and granting Covol access over Pinnacle's property. Pinnacle disclaims any warranties regarding the suitability of its property for processing refuse material. The Comprehensive Processing and Recovery Resource Agreement (CPRRA) represents the complete understanding between the parties, establishing Covol's responsibility for waste management and identifying West Virginia as the governing jurisdiction. The CPRRA includes clauses on assignment, notification, taxation, record-keeping, indemnification, insurance, and ownership of land and refuse material. Covol improved the coal waste processing facility and began operations in summer 2008. Initially, operations were successful, but by 2010, steep slopes in the impoundment hindered Covol's ability to retrieve refuse material, prompting an excavation project. Disputes arose over whether Pinnacle encouraged Covol to excavate and agreed to share costs. Covol asserts that Pinnacle supported the excavation and promised to share expenses, while Pinnacle denies these claims, stating it rejected any cost-sharing proposal. Covol needed Mine Safety and Health Administration (MSHA) approval for the excavation, which involved dredging the impoundment in increments. The excavation was completed at a cost of approximately $3.5 million. Around the same time, Pinnacle upgraded its wash plant and altered its water management system, adversely affecting Covol's access to recoverable coal waste. Covol contends these changes made it impossible to access economically recoverable material, which underpins its claims against Pinnacle. Pinnacle asserts that the existing wash plant was obsolete and that the CPRRA did not restrict its ability to upgrade or require it to notify Covol about such plans. Pinnacle claims to have informed Covol about the upgrade in June 2010, which would lead to lower-quality refuse material in the impoundment. Conversely, Covol argues that Pinnacle had been planning the upgrade since 1997 and did not disclose this to Covol prior to the CPRRA, significantly hindering Covol’s capacity to process refuse into saleable coal. Pinnacle also implemented a new water management system due to a WVDEP enforcement action regarding selenium pollution, claiming to have consulted with Barr Engineering for guidance. Pinnacle’s chosen solution involved a water recycling program that complied with WVDEP standards but restricted both companies' ability to manage water levels in the impoundment. Covol contends that Pinnacle had an alternative option, a water treatment program, which would have been effective without disrupting Covol's operations. Covol alleges that Pinnacle influenced Barr to alter its draft report to favor the water management system over the initially proposed treatment option. Covol argues that Pinnacle's decision effectively halted its waste processing operations by preventing access to the refuse material due to elevated water levels. Covol claims that Pinnacle failed to keep it adequately informed, disregarded Covol's rights, and did not consider its recommendations on managing selenium. Covol states that it relied on the draft report provided by Pinnacle, which did not reflect the final recommendations, and asserts that Pinnacle ignored its concerns regarding the water level management, despite knowing its importance for Covol’s operations. The dispute includes whether Pinnacle agreed to continue lowering the water level in the impoundment. Covol claims that Pinnacle repeatedly assured it would lower the water level in the impoundment pond, supporting its argument by referencing the CPRRA, which allegedly grants Covol a right-of-way for transporting refuse material, includes plans approved by Pinnacle for lowering the water level, and asserts that Covol's access to this material is essential for processing it into saleable coal. Pinnacle counters that its ability to pump water has always been limited, which Covol’s plant manager was aware of, and denies any contractual obligation to lower the water level. Covol contends that Pinnacle's actions and failures led to the shutdown of its operations, prompting Covol to file a Complaint on August 7, 2012, alleging breach of contract, fraudulent concealment, negligent misrepresentation, and unjust enrichment. Covol seeks a jury trial and various forms of damages and relief. Pinnacle denies wrongdoing and provides several defenses in its Answers. Following extensive discovery, Pinnacle filed a Motion for Summary Judgment on October 21, 2013, which Covol opposed on November 5, 2013. Pinnacle subsequently replied on November 15, 2013. The Court is now reviewing the record to consider summary judgment on Covol's claims, applying the standard that it should be granted if no genuine dispute of material fact exists and the movant is entitled to judgment as a matter of law, while viewing evidence in favor of the nonmoving party. The nonmoving party in a legal dispute must demonstrate a genuine factual dispute by presenting more than mere speculation or minimal evidence. Summary judgment is inappropriate when material facts exist that can only be resolved by a finder of fact. Conversely, if the nonmoving party fails to establish an essential element of its case, summary judgment should be granted, rendering other facts immaterial. In the breach of contract claim against Pinnacle regarding the CPRRA, both parties agree on the contract's validity but dispute their respective rights and obligations. Pinnacle contends it did not breach the contract, asserting no duty exists to lower the water level or provide Covol access to refuse material. Covol maintains it cannot access the material without the water being lowered and claims a right to do so under the contract. Pinnacle argues that Covol's access is limited and does not require water level adjustments. Breach of an unambiguous contract is well-suited for summary judgment as courts can interpret the contract's language directly. The first step is to assess whether the contract is ambiguous, determined by the court as a legal question; ambiguity arises if the language can reasonably be understood in two ways. Disagreement between parties regarding contract interpretation does not alone create ambiguity. If the language is unambiguous, it must be interpreted according to its plain meaning without altering the parties' intentions. If deemed ambiguous, extrinsic evidence may be considered to ascertain the parties' intent. Summary judgment is appropriate for ambiguous contracts only if evidence definitively resolves interpretative issues. If ambiguity exists and extrinsic evidence allows for multiple reasonable inferences of intent, the matter becomes a factual issue for trial. An ambiguous contract lacking credible extrinsic evidence reveals material factual disputes, making summary judgment unsuitable. The Court finds the language of the CPRRA clear and unambiguous, with straightforward terms that allow no reasonable alternative interpretations. The contract, negotiated between sophisticated parties with legal representation, will be enforced based on its plain meaning. Covol's claims regarding Sections 1, 4, 8, and 18 of the CPRRA for an express right to access refuse material are rejected. Section 1 outlines Covol's intentions but does not create an obligation for Pinnacle to provide access. Section 4 details Covol’s duty to purchase refuse material but does not obligate Pinnacle to grant access, particularly since Section 30 prohibits interpretation based on headings. Even if Section 4 implied a right to access, Pinnacle did not agree to unrestricted access to the impoundment. Section 18 does impose duties on Pinnacle, requiring it to allow Covol to operate a processing facility and provide necessary access, yet it does not obligate Pinnacle to lower the water level for access, as this requirement is not expressly stated in the contract. Covol’s argument that Section 8 necessitates water level reduction per certain mining plans is similarly unsupported. Covol seeks to incorporate the MSHA plan into the CPRRA, but the CPRRA lacks the necessary legal specificity for such incorporation. Under West Virginia law, a general reference is insufficient to include another document in a final agreement. The CPRRA's references to Pinnacle’s mining plans and permits are deemed mere oblique references and fail to provide clear identification of any plan or permit. Consequently, Covol's assertion that Pinnacle has a contractual obligation to lower the impoundment pond's water level is rejected. The CPRRA explicitly grants Covol the right to operate the Processing Facility and access necessary rights-of-way but does not impose a duty on Pinnacle to adjust water levels. The Court finds no evidence of Pinnacle failing its contractual obligations under the CPRRA, thus ruling in favor of Pinnacle for summary judgment regarding the breach of contract claim. Regarding the common law or implied right to access, Pinnacle argues that Covol's rights are strictly defined by the CPRRA's express language, which does not require Pinnacle to control water levels for Covol’s benefit. Covol contends that the CPRRA collectively indicates a right to access refuse material as essential to its purpose. However, the Court maintains that it cannot impose additional duties beyond the clear terms of the integrated contract. Extrinsic evidence to alter the unambiguous CPRRA terms is also excluded. Therefore, Pinnacle is granted judgment on Covol's implied right of access claim. Even if the CPRRA suggested an implied duty to provide access, the Court finds no material breach by Pinnacle, as Covol was not denied access but faced increased water levels in the impoundment. Section 20 of the CPRRA explicitly disclaims warranties concerning the quantity and quality of refuse materials and their suitability for Covol’s processing plant operations. Although Pinnacle's business decisions may have complicated Covol's operations, there is no evidence of a breach of the CPRRA by Pinnacle. Regarding the implied covenant of good faith and fair dealing, Pinnacle asserts that this covenant does not grant Covol rights beyond those expressly stated in the CPRRA, and since Pinnacle did not violate Covol’s rights under the CPRRA, it argues there is no breach of the implied covenant. Covol contends that the covenant is inherently included in the CPRRA and that Pinnacle's alterations to water management systems, which limited Covol's benefits from the contract, constitute a breach. West Virginia law recognizes an implied covenant of good faith and fair dealing in all contracts, defining good faith as honesty and adherence to reasonable commercial standards. However, this covenant does not create a separate cause of action from breach of contract. The court finds no material dispute regarding Pinnacle's adherence to reasonable standards in managing selenium pollution and concludes that Pinnacle did not breach any duties under the CPRRA. Consequently, Pinnacle is entitled to summary judgment on the claim for breach of the implied covenant of good faith and fair dealing. In addressing Covol’s claims of fraudulent concealment and negligent misrepresentation, Pinnacle presents three arguments for dismissal: first, that Covol’s claims are based on issues covered by the CPRRA, precluding recovery under common law; second, that there was no obligation for Pinnacle to disclose information due to a lack of a relationship imposing such a duty; and third, that Covol’s reliance on Pinnacle's silence was unreasonable, given the timing of Pinnacle's updates and Covol's investments. Pinnacle asserts that Covol was aware of the changes to the water management system and the planned wash plant upgrade by the time it proceeded with its projects. Covol claims that Pinnacle's actions and omissions amount to common-law fraud, alleging intentional concealment of critical information regarding the wash plant upgrade and selenium management plan during Covol's decision-making process. Covol references testimony from Barry O’Bryan, a superintendent at Pinnacle, indicating that the upgrade plans for Pinnacle's wash plant began in 1997, prior to Covol's acquisition of the facility. Covol contends it only received a draft report from Barr that recommended water treatment rather than water management, not the final recommendations, before starting excavation. Covol alleges that Pinnacle misrepresented its ability to lower water levels in the impoundment, which Covol relied on to its detriment. Pinnacle counters that Covol's claims stem from the CPRRA and are not actionable under tort law, asserting no special relationship existed that would create a duty to disclose. Pinnacle maintains that Covol was aware of the upgrade plans and the selenium pollution issue before approving excavation. The elements for fraudulent misrepresentation include: 1) the defendant's fraudulent act; 2) the act being material and false, with justified reliance by the plaintiff; and 3) resultant damages to the plaintiff. Fraudulent concealment requires: 1) concealment of facts; 2) a duty to disclose; and 3) intent to mislead. Active concealment that obstructs investigation can be actionable. Negligent misrepresentation entails: 1) false representation; 2) lack of knowledge by the defendant; 3) the representation being false; and 4) detrimental reliance by the plaintiff. Under West Virginia's gist-of-the-action doctrine, a tort claim may coexist with a contract claim only if it is independent of the contract's terms, as tort law does not compensate for contractual breaches. The court concludes that Pinnacle is entitled to summary judgment on Covol's claims of fraudulent concealment and negligent misrepresentation, determining that Covol's allegations primarily concern Pinnacle's failure to disclose its upgrade plans. The fraudulent inducement claim requires proof that Pinnacle induced Covol to enter the CPRRA through false representations that Pinnacle knew or should have known were untrue. The Court found that Pinnacle's failure to disclose general plans for upgrading the wash plant does not constitute a false representation, noting Covol did not inquire about such plans or show that Pinnacle actively concealed information during due diligence or contract execution. Covol's tort claims are barred by the gist-of-the-action doctrine, as they rely on the existence of the CPRRA. The contract's language clarifies that Pinnacle disclaimed any warranties regarding the suitability of the premises for processing refuse material, which Covol accepted, along with the associated risks. The Court determined Pinnacle is entitled to summary judgment on the fraudulent concealment and negligent misrepresentation claims. In addressing the unjust enrichment claim, Pinnacle argued it should fail because Covol could not prove any benefit received from the excavation project. Pinnacle also claimed it rejected any agreement to share expenses, undermining Covol's entitlement to payment. Covol countered with deposition testimony indicating Pinnacle did benefit from the excavation. However, Pinnacle maintained it received no benefit and did not agree to pay any costs. In West Virginia, unjust enrichment requires: (1) a benefit conferred on the defendant; (2) the defendant's knowledge of the benefit; and (3) retention of the benefit under circumstances making it inequitable not to pay for it. The West Virginia Supreme Court has established that a party improving another's property may seek restitution under certain conditions, including fraudulent misrepresentation by the defendant. An innocent misrepresentation by the defendant can lead to a claim if the plaintiff justifiably relied on it, or if the plaintiff mistakenly believes payment was secured by a valid contract. The Fourth Circuit, interpreting West Virginia law, ruled that a party to a valid contract cannot pursue an unjust enrichment claim for services rendered under a preexisting express contract, as the express contract governs the rights and remedies related to the subject matter. If the benefit conferred falls within the scope of the express contract, recovery under unjust enrichment is barred. Covol undertook an excavation project to access more mineable material as part of its contractual obligations. Consequently, any claim for recovery related to that project must derive from the terms of the contract (CPRRA). Covol attempted to amend the CPRRA to include this project, but Pinnacle declined, accepting risks regarding the suitability of Pinnacle's premises for refuse removal. Thus, the unjust enrichment claim cannot proceed, leading the Court to grant Pinnacle's Motion for Summary Judgment. The Court also terminated any outstanding motions as moot and removed the matter from its docket. Covol had previously invested $4 million to renovate the coal waste processing facility, and while Covol claims it provided significant monetary benefits to Pinnacle through certain enhancements, Pinnacle disputes these allegations. The excavation project commenced in 2010 and concluded in 2011. There are ongoing disputes regarding Pinnacle's management of selenium pollution, a known contaminant in coal seams that poses challenges for coal companies in the area. Pinnacle acknowledges the facts surrounding its permit modification application to the WVDEP submitted in April 2008 aimed at reducing selenium discharge through bioremediation. In October 2008, Pinnacle amended its treatment plan, transitioning to a water management system that received WVDEP approval in February 2009. While Pinnacle does not dispute these details, it contends that prior reports did not dismiss water management techniques as solutions; instead, they indicated such management was essential. However, the Court interprets the reports differently, highlighting significant discrepancies between the draft and final versions. The draft report favored a passive microbial reactor for its cost-effectiveness and proven ability to meet regulatory standards, while the final report deemed all reviewed treatment technologies impractical for mining-scale compliance with low selenium discharge limits, necessitating further testing. The draft also noted the necessity to minimize pump flow from the impoundment due to its contribution to selenium discharge, a point absent in the final report. Additionally, Covol claims that when it acquired the waste processing facility in 2008, Pinnacle operated under a mining plan approved by MSHA that mandated lowering impoundment water levels, a critical aspect discussed prior to the execution of the CPRRA. Pinnacle's Answer included three exhibits: an Asset Purchase Agreement, a Coal Purchase and Refuse Recovery Agreement, and a Coal Sales Agreement, all dated February 2008 and signed by relevant parties, which were also attached to Pinnacle's Amended Answer. As of November 5, 2013, discovery was ongoing, highlighted by Covol’s response indicating that the parties were arranging a deposition. Pinnacle submitted various exhibits in support of its summary judgment motion, including multiple deposition transcripts from key individuals such as J. Scott Ballard, Kirk A. Benson, and William C. Boor, conducted between July and October 2013. These transcripts included several exhibits and covered numerous dates, showcasing extensive discovery efforts. Covol also attached exhibits in its opposition to Pinnacle’s motion, including additional deposition excerpts and a coal purchase agreement signed by both Covol Fuels No. 4, LLC, and Pinnacle Mining Company, LLC. Overall, the document underscores the active stage of discovery in the case, with various depositions contributing to the ongoing proceedings. The document includes a series of communications and reports primarily related to selenium management and mining operations. Key items consist of: - Emails to Barry Dangerfield dated April 26, 2012, and a chain of emails involving multiple individuals from April 26, 2013. - Draft and final reports titled "Preliminary Selenium Management Plan" prepared by Pinnacle Mining Company for Cliffs Natural Resources, with versions dated June 2010 and August 2010. - Various letters, including one from Robert Hardman to Douglas Townsend dated August 27, 2010, and a compliance treatment plan. - Presentations related to mining and selenium management dated November 11, 2009, and May 2010. - An MR-5 Application for a WV/NPDES Permit Modification dated April 2008, including multiple attachments. - Several email chains involving individuals like Barry O'Bryan, Roy Palmer, and Jeffery McCulloch, ranging from 2008 to 2012, discussing various operational and regulatory matters. - Documents related to mine safety and health regulations, including a summary of a meeting with the Mine Safety and Health Administration dated December 5, 2008, and responses to MSHA comments from July 24, 2009. - Additional correspondence includes letters from Robert Hardman and other communications involving John Shaal and Matthew Cartier. Overall, the excerpts detail a compilation of emails, reports, presentations, and correspondence relevant to mining operations and selenium management from 2008 to 2013. A two-page document titled "Pinnacle Plant Summary" dated March 19, 2012, along with additional graphic documents, were submitted by Pinnacle in support of its Motion for Summary Judgment. The exhibits included various deposition excerpts from multiple individuals, each dated between July and October 2013, detailing their testimonies relevant to the case. The CPRRA (Coal Purchase and Removal Rights Agreement) outlines Covol's intentions and obligations regarding coal waste material from Pinnacle's mining operations in Wyoming County, West Virginia. Section 1 indicates Covol's desire to purchase and remove coal waste for processing and resale as clean coal. Section 4 mandates Covol to purchase and process all coal refuse produced during the agreement's term, with transportation at Covol's expense. Section 8 requires Pinnacle to maintain necessary permits for compliance with the agreement. Covol claims a common law right to access the coal estate granted by Pinnacle, asserting that such rights ensure access to coal in the impoundment. In contrast, Pinnacle argues that the CPRRA constitutes a mere license to mine without any implied rights of access. Covol has seemingly abandoned its claim of a common law right of access, as it is not included in their response. The Court finds no legal basis for this alleged right, aligning with the arguments presented by Pinnacle in their summary judgment motion. Mr. Boor’s deposition indicates that any agreement without access to materials in the impoundment pond would be nonsensical, as Covol's business model depended on cleaning coal, which required access to the coal. The CPRRA (Coal Processing and Refuse Removal Agreement) states that it represents the entire understanding between the parties, superseding prior negotiations. Notably, Section 20 disclaims any warranties regarding the refuse material’s character, quality, or safety, emphasizing Covol's acceptance of risks associated with processing materials on Pinnacle’s premises. Counts Two and Three of Covol’s complaint are based on the same facts, and both parties address them simultaneously in their motions. It is established that the CPRRA was entered into in February 2008, and Pinnacle presented its wash plant upgrade project to its board in November 2009, though the upgrade did not occur until 2010. Pinnacle states it faced no governmental action regarding selenium until March 2010, when the DEP denied an extension request for compliance. Covol approved an excavation project in October 2010, with management confirming awareness of Pinnacle's planned upgrade by July 2010. Furthermore, Covol's witness acknowledged knowledge of Pinnacle’s selenium issue and received a draft report with water treatment options by August 2010. Pinnacle has not demonstrated that it shared Barr's final report on water management with Covol prior to the excavation project. Covol's claims are based on MSHA plans for lowering water levels. The gist-of-the-action doctrine prevents tort recovery if liability arises solely from a contractual relationship, the breached duties are contract-based, or the tort claim duplicates a breach of contract claim. In November 2011, Covol proposed amending the CPRRA to split excavation costs after the project had already commenced, but this proposal was never signed. Darrell Turner from Covol confirmed that the proposed changes were sent in response to a lack of communication from Duke Vetor. The Fourth Circuit emphasized that the case reflects a supplier-distributor relationship governed by contract, which delineates benefits and liabilities. Covol sought an amendment to require Pinnacle to contribute to excavation costs but acknowledged that this amendment was never executed. Covol informed Pinnacle of its excavation plans in October 2008, while Pinnacle contends that Covol only sought cost-sharing negotiations as the project neared completion, which Covol does not dispute.