Knox Energy, LLC v. Gasco Drilling, Inc.

Citation: 258 F. Supp. 3d 709Docket: Case No. 1:12CV00046

Court: District Court, W.D. Virginia; June 28, 2017; Federal District Court

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In a breach of contract case under Virginia law, the jury ruled in favor of plaintiff Knox Energy, LLC and counterclaim defendants Consol Energy, Inc., determining there was no mutual assent to the alleged contract with defendant Gaseo Drilling, Inc. Gaseo sought a new trial under Federal Rules of Civil Procedure 59(a) and 60(b)(3), which was denied. The procedural history indicates that Knox Energy initiated the action to confirm the absence of a contractual relationship with Gaseo, which counterclaimed for over $14 million based on an expired drilling contract allegedly revived by an addendum from Consol. Prior to the trial, the court designated Gaseo as the plaintiff with the burden of proof regarding the enforceability of the contract. 

Initially tried in September 2014, the court granted judgment favoring Knox and Consol during Gaseo’s case-in-chief, asserting no reasonable jury could find mutual assent. However, the appellate court reversed this ruling, stating the issue of mutual assent required jury evaluation without weighing evidence or assessing credibility. The background involves a 2008 drilling agreement between Consol and Gaseo, which included standby rates and a take-or-pay provision. After amending the contract in May 2010 and subsequently terminating it in July 2010, the central issue became whether the 2008 contract was reinstated in 2011 via a signed addendum, which modified the agreement's term. After a year of no drilling requests from Consol, Gaseo invoiced for standby charges, but Consol contested payment, leading to a declaratory relief action and Gaseo's counterclaim for breach of contract.

The court of appeals determined that if Gaseo was aware or should have been aware of a mistake by Consol, then mutual assent was absent. However, Gaseo provided enough evidence for a reasonable jury to potentially rule in its favor. The court upheld multiple pretrial rulings, including a limitation on Gaseo’s recovery to standby charges for a single drilling rig, as indicated in a May 10, 2012, addendum. The court also allowed parol evidence regarding Knox/Consol’s mistake, emphasizing that Consol needed to demonstrate some evidence of its mistake to establish it was apparent to Gaseo. The jury was instructed that mutual assent depended on objective circumstances rather than unexpressed intentions. After the second trial, the jury ruled against Gaseo, indicating that Gaseo failed to prove mutual assent regarding the expired 2008 drilling contract’s reinstatement as per the addendum.

In terms of trial evidence, Clyde Beaver "Ben" Ratliff, along with family members, owned Gaseo, which peaked at 180 employees in early 2008. On January 10, 2008, Gaseo entered a daywork drilling contract with Knox/Consol for natural gas horizontal wells in eastern Tennessee, with set day rates and standby rates. This contract included additional terms for vertical drilling rates and had a one-year term but was canceled early. Subsequently, in June 2008, a take-or-pay contract was established to guarantee rig availability, ensuring Gaseo received payment for a specific number of days regardless of actual drilling activity. This new contract differed from the prior one by allowing Gaseo to receive payment even when not mobilizing equipment, but it restricted Gaseo from using dedicated rigs for other potentially higher-paying work.

The 2008 Drilling Contract, utilizing the IADC form from a previous agreement, included a take-or-pay provision mandating the Operator to pay for 328 days annually at specified rates: $13,500 with pipe, $12,000 without pipe, and $10,800 standby. Adjustments to these rates were contingent on rig availability. The contract expanded to cover eastern Tennessee, eastern Kentucky, Virginia, and southern West Virginia, with Gaseo drilling five wells under the initial contract and eight additional wells throughout 2008.

In February 2009, the standby rate was amended from $10,800 to $6,800 without any compensation to Gaseo, with a provision for a rate increase back to $10,800 upon resumption of drilling. Although drilling recommenced in September 2009, the higher standby rate was not charged due to oversight, and no subsequent payments for the uncharged amounts were offered by Knox/Consol. Another amendment in May 2009 reduced the day rate from $12,500 to $11,500 and the footage rate from $22.50 to $20.50, again without any consideration provided to Gaseo.

A further amendment in May 2010 required continued drilling until five specified wells were completed, extending the contract term slightly. Gaseo did not bid for this extension, and the amendment also released another rig from the contract, exempting Knox/Consol from standby payments for that rig.

Invoicing under the 2008 Drilling Contract involved Gaseo issuing unique invoices for each well drilled, with Knox/Consol providing distinct purchase order numbers for payment, which were tied to additional terms and conditions. In February 2009, Knox/Consol instructed Gaseo to submit monthly invoices instead of the usual end-of-year billing practice. Late in 2010, Knox/Consol solicited bids for a 2011 contract, indicating a shift in terms: the new contract would not include a standby rate and required bids based on a three-person crew, in contrast to the four-person crew specified in the 2008 contract.

Gaseo submitted two bid proposals for a drilling contract. The first proposal included day rates of $11,800 without pipe and $12,300 with pipe, alongside a standby rate of $10,800, despite Knox/Consol's indication that a standby rate would not be included. The $12,300 day rate was $200 lower than the modified day rate from a previous 2008 contract. The second proposal offered higher day rates of $12,500 without pipe and $12,850 with pipe but did not specify crew size and again included the standby rate. This proposal also stated a one-year term starting January 2011 with no renewal options and lacked an early termination penalty or a take-or-pay provision, which Ben Ratliff noted was unrequested by Knox/Consol due to the market conditions.

Gaseo was ultimately not awarded the contract; it was given to Noah Horn Well Drilling. In early 2011, Ratliff heard rumors about mechanical issues with Noah Horn's rig. On June 6, 2011, Gaseo received an email from Janet Fahrenhold at Knox/Consol regarding an Addendum to Contract Purchase Order No. 5600000439, which revised the contract's term to automatically extend annually unless terminated with a 30-day notice. The email included an attached addendum that outlined the modification of the contract's term but stated that all other contract provisions remained unchanged. Following this, Gaseo's office manager, Freda Rasnake, contacted Ratliff about the email; Ratliff, confused by the content, instructed Rasnake to request a copy of the contract referenced in the addendum. Rasnake subsequently sent two emails to Fahrenhold asking for the contract, but did not receive a response.

On the specified day, Rasnake received an email from Erin Bywaters of Knox/Consol, concerning contract 5600000439 and attaching the 2008 Drilling Contract along with related documents. Bywaters, identified as part of Material and Supply Chain Management, advised Rasnake to contact a Sourcing Specialist for inquiries. Ben Ratliff had previously encountered Bywaters' name on a purchase order, and recalled Rex Cooper informing him of communication changes due to company restructuring. A February 2009 letter from Knox/Consol also indicated a shift towards electronic procurement with suppliers. 

Ratliff interpreted the email from Fahrenhold, which included the same attachments as Bywaters' message, as a signal that Knox/Consol intended to reinstate the contract. Upon returning to the office, Ratliff received a comprehensive list of terms and conditions from Knox/Consol, which mentioned Todd Shumaker as General Manager, Contract and Project Management. An attachment indicated the contract's validity start date as January 22, 2010, leading Ratliff to feel uneasy about the potential backdating, as it implied entitlement to standby time. The attachment specified a term of one year with automatic renewals until termination notice was provided.

Ratliff typically did not consult an attorney about drilling contracts unless uncertain, but met with Randy Bolling regarding the Addendum on June 13, 2011. He decided to sign the contract with the current date rather than the backdated one, executing the Addendum on the same day. He instructed Rasnake to email the signed Addendum to Knox/Consol, stating Gaseo was prepared to undertake work, although the email did not mention drilling specifically. Following this, on July 27, 2011, Fahrenhold requested information about Gaseo personnel, and two days later sent another email regarding "100679 Gaseo Drilling."

An email was sent containing attached copies of a fully executed addendum and eCommerce forms signed by Shumaker. Ben Ratliff testified that based on the Addendum, Gaseo renewed a lease for an equipment yard in Tennessee and retained employees for drilling work, asserting he believed Shumaker had read and intended to sign the Addendum. One year later, Ratliff issued an invoice for standby charges totaling $7,084,800 to Knox/Consol for 328 days at a daily rate of $10,800 for two rigs. After the invoice was sent, Shumaker attempted to contact Ratliff, but their communication was unsuccessful. Subsequently, Knox/Consol's attorney sent a letter denying any contractual relationship, citing a clerical error that led to the miscommunication regarding the addendum and asserting that Gaseo was aware the forms were a mistake. The letter confirmed that there had been no agreement to extend the 2008 Drilling Contract, which had terminated in July/August 2010. Knox/Consol explicitly denied any ongoing contractual arrangement and declared any existing arrangements terminated. The 2008 Drilling Contract included an early termination clause mandating standby payment if terminated early. Ratliff responded to Knox/Consol’s letter with a second invoice for standby charges. The contracts had been negotiated by others on behalf of Knox/Consol, with Ratliff having limited experience negotiating similar contracts. He had previously executed a contract with a take-or-pay provision but did not drill under it due to a significant drop in natural gas prices from mid-2008 to early 2009.

In April 2009, Albert and Wright approached Ben Ratliff to negotiate an amendment to the 2008 Drilling Contract, indicating that Gaseo's rigs would need to be on standby for an indefinite period. Gaseo invoiced Knox/Consol for standby charges on May 6, 2009, after one rig drilled a well in September 2009. The rigs resumed regular drilling in January 2010, with minimal standby time for the remainder of that year. In May 2010, Albert and Wright sought another amendment due to declining natural gas prices, proposing to release a second rig from the contract. Proposed language for extending the contract was removed by Knox/Consol and not included in the final agreement. Following a final invoice from Gaseo in August 2010, there was no further relationship between Gaseo and Knox/Consol for the rest of the year.

On January 3, 2011, Chris Ratliff inquired about potential drilling needs, and Wright indicated only two shallow wells were planned. The next day, Malamisura from CNX Gas confirmed no available work. Ben Ratliff testified that he had no current contract with Knox/Consol when he received an initial email from Fahrenhold, which mentioned a one-year term that did not exist at that time. He stated that Knox/Consol had previously reused expired contracts. The Terms and Conditions document accompanying an Addendum specified that terms applied only to non-bid work and could not be used for competitively bid services. Ben Ratliff did not review the Terms and Conditions, assuming it was similar to previous documents. He believed the Addendum altered the term provision of the 2008 Drilling Contract, which originally stated a two-year term starting July 7, 2008. At the time of receiving the Addendum, natural gas prices had dropped significantly from $10.50 to $4.20 per unit.

As of June 1, 2011, Gaseo had 15 out of its 16 drilling rigs idle, significantly impacting its business compared to June 2008, when it paid approximately $19 million in dividends. By 2011 and 2012, Gaseo operated at annual losses of several hundred thousand dollars and did not submit bids with take-or-pay provisions from 2010 to 2013, knowing such bids would be unsuccessful. Despite this, Ben Ratliff believed Knox/Consol wanted to revive the 2008 Drilling Contract in 2011. Only a few Gaseo representatives were aware of an Addendum related to this contract, as Ratliff typically limited knowledge of contracts for competitive reasons.

In August 2011, Ratliff met with Consol’s Litwinovich to discuss a bid for drilling in the Marcellus Shale, using two Speedstar 185 rigs stored in Tennessee—capable of the work but not suggested for relocation despite higher day rates. Gaseo’s bid included a clause emphasizing the separation of the Marcellus Shale contract from prior agreements, which Ratliff claimed was due to the distinct nature of the work. A communication on the day he signed the bid indicated he discussed the Addendum with Bolling, yet Gaseo did not win the Marcellus Shale contract and incurred a $941,000 loss in 2011, without invoicing Knox/Consol for standby time under the 2008 Drilling Contract.

Ben Ratliff indicated his practice of billing at the end of contract terms, which led to his decision to invoice Knox/Consol for standby time only after a year, rather than on a monthly basis. The 2008 Drilling Contract specified that payment was due upon invoice presentation at the end of the month in which work was performed or charges incurred, but Ratliff believed this did not necessitate monthly invoices. On January 3, 2012, Chris Ratliff reached out to Doug Clark of Knox/Consol regarding drilling plans, unaware of the Addendum. At that time, Gaseo's drilling rigs were idle. Gaseo sent an invoice for standby time on June 13, 2012, claiming it was too late for Knox/Consol to notify non-renewal for the contract's second term. This invoice was the first correspondence about the Addendum since its execution the previous year. Gaseo failed to request a purchase order number before invoicing, listing only the contract number instead.

Knox/Consol's SEC annual report highlighted risks in their operations, including commodity availability and costs, which could adversely affect profitability. They employed "take or pay" contracts to manage risks, obligating them to pay for services regardless of actual usage, which could lead to increased costs if gas prices declined. Todd Shumaker testified about the separation of authority within Knox/Consol, with the operational side identifying needs and the supply chain side handling procurement. He stated he was not informed of any limitations on his authority regarding contracts. Shumaker confirmed he signed the Addendum after ensuring all sections were completed and mentioned that Fahrenhold, a temporary worker, was involved in contract management, while Erin Bywaters assisted him in clerical tasks.

Shumaker clarified that he did not employ the individual in question; she was instead part of the Business Supply Process Group. He testified that Knox/Consol created the Addendum form to facilitate an "evergreen program," aimed at simplifying the renewal process for approximately 1,000 contract purchase orders that were initially structured as rate sheets without specified values. These contracts, requiring renewal every one to two years, posed an administrative challenge. The proposed amendment would allow automatic yearly renewals unless one party provided a 30-day notice of intention not to renew or to negotiate terms.

Fahrenhold was assigned to email vendors regarding this amendment, using a specific list that included references to the 2008 Drilling Contract. Rex Cooper had previously directed Litwinovich to incorporate IADC drilling contracts into Knox/Consol’s SAP system, which streamlined invoicing and purchase order issuance, despite the differences between drilling contracts and standard boilerplate contracts. The 2008 Drilling Contract was added to the SAP system prior to the evergreening initiative, but Shumaker overlooked its presence when preparing contract lists.

Shumaker indicated that, within Knox/Consol, "terms and conditions contract" and "contract purchase order" are interchangeable terms for low-value agreements. He did not verify the contract purchase order number in the SAP system before signing the Addendum and did not instruct Fahrenhold or Bywaters to review the referenced documents thoroughly before sending them to vendors. The Addendum was designed to modify the term of existing contracts by replacing the original term language with that of the Addendum. From Knox/Consol's viewpoint, the phrase "date set forth above" in the Addendum referred to the effective date of the underlying contract being amended, not the date in the Addendum's preamble. The terminology used in the Addendum and Fahrenhold’s emails indicated an intention to amend existing agreements rather than to revive expired contracts, aligning with Knox/Consol’s Terms and Conditions Agreement Policy.

Terms and Conditions Agreements serve to define the pricing, terms, and conditions for work performed by contractors while ensuring compliance with safety, insurance, and regulatory standards. Such agreements facilitate the engagement of contractors but do not eliminate the need for a separate purchase order for each service rendered; this purchase order is essential for billing purposes. Invoices must adhere to the pricing outlined in the Terms and Conditions Agreement and are applicable only to non-bid work typically categorized as time and material jobs, such as those for water trucks. These agreements can also be utilized for routine services but cannot be used for competitively bid projects.

Furthermore, a purchase order must be obtained prior to commencing any specific job, and contractors must reference this number on their invoices for Accounts Payable processing. The policy regarding these agreements was disseminated to all contractors, including Gaseo, although an addendum was mistakenly sent to additional drilling companies, none of which claimed that their expired contracts were revived by this addendum.

Brian Green, General Manager of Knox/Consol from May 2010 to November 2011, reported to Randy Albert and had significant communication with Gaseo's representatives. In May 2010, Gaseo proposed an amendment to an existing drilling contract, suggesting that the contract could be extended by mutual agreement, but this language was not adopted. Prior to soliciting bids for drilling in 2011, Green discussed the matter with Chris Ratliff of Gaseo. On December 1, 2010, Sagraves sent a bid solicitation to various drilling companies, including Gaseo, with an IADC footage-based contract form that Knox/Consol partially completed, expecting the companies to fill in the remaining details. Green clarified the distinction between standby time, which is paid for delays beyond the control of the drilling company, and take-or-pay provisions.

Knox/Consol indicated "N/A" for the standby rate on the IADC form sent to drilling companies, reflecting their intention not to pay for standby time under the 2011 drilling contract. Green stated that a take-or-pay provision was not proposed due to a decline in the natural gas market and the availability of rigs, making it commercially unreasonable to enter such a contract in December 2010. Gaseo submitted two bids for 2011, both lacking take-or-pay provisions; had they included such provisions, Knox/Consol would not have considered them. On December 30, 2010, Knox/Consol awarded the 2011 contract to Noah Horn, without Gaseo inquiring about the Addendum or the 2008 Drilling Contract. Green noted that the 2011 bids were more favorable than the 2008 contract, negating the need to reinstate it. Roop, a former accountant for Gaseo, acknowledged an unusual invoice issued to Knox/Consol based on the Addendum and detailed his involvement in meetings and communications regarding it. He indicated that the email he sent on May 15, 2012, was about setting reminders for invoices related to the standby rate, which he connected to the Addendum. Although Gaseo could have sent monthly invoices, Roop explained that tax considerations sometimes dictate delaying billing. He confirmed that Gaseo complied with Knox/Consol's request for monthly billing under the 2008 contract but typically did not do so for standby time. Randy Albert testified that footage drilling contracts favor gas companies like Knox/Consol by shifting the risk of delays to the drilling company.

Take-or-pay contracts present significant risks for gas companies and are typically utilized during periods of high demand for drilling rigs. Knox/Consol prepared permits and title work 12 to 18 months prior to drilling, indicating a thorough planning process before contract decisions were made. Between 2008 and 2010, the natural gas drilling industry shifted from Tennessee, Kentucky, and Virginia to the more productive Marcellus Shale in Pennsylvania and West Virginia. In 2007 and 2008, demand for rigs in the former states peaked; however, by 2011, the supply of rigs exceeded demand, partly due to the need for larger rigs for horizontal drilling in the Marcellus Shale.

Drilling companies faced substantial initial investments, often exceeding $20 million for suitable rigs in the Marcellus Shale, significantly more than the costs in the southern Appalachian region. Consequently, Knox/Consol sometimes opted for take-or-pay contracts during 2009 and 2010. Albert testified to regular communication with Ben Ratliff and other Knox/Consol staff regarding drilling contracts. 

In May 2010, when amending the 2008 Drilling Contract, Knox/Consol removed Gasco’s proposed language for contract extensions, as Knox/Consol was eager to terminate the financially burdensome agreement. The 2011 contract awarded to Noah Horn featured a newer rig and planned for 20-25 wells, with no urgency from Knox/Consol to commence drilling. Gasco, when bidding for this contract, did not assert that it had rigs available under the allegedly reinstated 2008 contract, which Albert stated he would have utilized had he acknowledged its validity.

Albert expressed unfamiliarity with the clause in Gasco's bid that claimed no alterations to prior contracts and noted that he had never encountered similar language in other drilling contracts. He also remarked that it was unusual for drilling companies to delay invoicing for a year, as he had not seen other companies do so.

Albert indicated that Knox/Consol occasionally extended drilling contracts by mutual agreement without a competitive bidding process and did not disclose its drilling commitments to landowners under gas leases to Gaseo or other drilling companies. On April 30, 2010, Consol acquired Dominion Resources for approximately $3.5 billion, gaining 1.46 million acres of gas leases and one million cubic feet of net crude reserves. Consol also acquired all publicly owned stock in its subsidiary, CNX Gas. The drilling activity reported by Knox/Consol included 534 wells in 2008, 247 in 2009, 317 in 2010, 254 in 2011, 96 in 2012, and 150 in 2013.

The focus of Gasco's motion was the exclusion of the 2012 Noah Horn Contract, which was established on December 19, 2011, for drilling in 2012, 2013, and 2014. This contract, titled “Contract Purchase Order,” automatically renewed unless a party provided timely notice of nonrenewal and was not procured through competitive bidding. During trial, Gasco attempted to introduce this contract but had not listed it in their exhibits, and Knox/Consol's counsel claimed they had not seen it before. Gasco had subpoenaed Leon Boyd from Noah Horn to bring all original drilling contracts from 2011, and Boyd provided the 2012 Noah Horn Contract and its attachments—a pricing sheet and drilling bid proposal—on the third day of the trial.

Gasco's counsel sought to introduce the contract, arguing it contradicted Knox/Consol’s narrative by referring to it as a terms and conditions contract. Knox/Consol objected to its introduction, asserting they had not previously reviewed the document and contending that Gasco's receipt of it violated a court order against further discovery. Additionally, Knox/Consol noted that the 2012 Noah Horn Contract was not included in Gasco’s exhibit list. Shumaker, who was to testify about the contract, could not authenticate it, leading to its exclusion during his testimony. Gasco later sought to call Boyd to introduce the contract.

Knox/Consol raised objections regarding the relevance of the 2012 Noah Horn Contract, claiming it was introduced after the six-month deadline following the Addendum sent to Rasnake. Gaseo argued that Knox/Consol should have been aware of the contract since it was in their possession, despite their counsel being unaware. Gaseo subpoenaed documents from Boyd to obtain a clearer version of the 2011 contract, anticipating no new documents would emerge. In an email, Gaseo inquired whether Boyd had information on the 2012 agreement’s exclusivity, leading to the receipt of the contract shortly before the trial. Upon review, Gaseo’s counsel suspected it pertained to ancillary services, not drilling. Although Noah Horn’s counsel agreed to provide attachments at trial, Gaseo’s counsel mistakenly advised Boyd he was not needed until later. Gaseo failed to send the contract to Knox/Consol despite an earlier document request requiring such disclosure. Although Gaseo claimed the contract was responsive to an earlier discovery request, Knox/Consol had objected to that request in December 2013, and Gaseo did not pursue a motion to compel. The court ruled to exclude the 2012 Noah Horn Contract, stating that allowing its introduction would be unfair to Knox/Consol, which lacked adequate time to investigate the contract's circumstances. During cross-examination, Gaseo’s counsel attempted to question a witness about the contract, which Knox/Consol objected to, arguing it violated the exclusion ruling. Gaseo’s counsel contended he was impeaching testimony, claiming that Knox/Consol had opened the door to this line of questioning. The court expressed concerns regarding the limited relevance of the contract, noting it did not contradict Knox/Consol’s assertion that the Addendum was sent in error, and found no evidence that Gaseo had knowledge of the contract at the time of the Addendum’s execution.

Concerns were raised regarding the late attempt to introduce the 2012 Noah Horn Contract as evidence, which was not disclosed by Gaseo until after the deadline for exhibits. Gaseo intended to call Boyd to testify about the contract, highlighting its nature as a non-bid, take-or-pay contract with an evergreen provision. Knox/Consol objected, citing the best evidence rule and asserting that the testimony would undermine pretrial orders and the exclusion of the contract. They argued the contract's relevance was diminished by its late disclosure and claimed the case focused on practices at the time the addendum was sent, not later practices. The absence of key witnesses who could clarify the contract's relevance further complicated matters. Ultimately, the court ruled to exclude both the contract and testimony about it, determining that the contract did not pertain to a material issue and Gaseo's failure to disclose it in a timely manner would unfairly prejudice Knox/Consol. The court noted that pretrial disclosures were mandated by Rule 26(a)(3) and that the late introduction of the exhibits did not meet the criteria for impeachment. The court elaborated on its decision during the trial, indicating that the relevance of the evidence was minimal and that it lacked a direct connection to Gaseo's knowledge, a pivotal point in the case. Following the trial, additional details regarding discovery related to the contract were highlighted.

Copies of all contracts for drilling services by Noah Horn Well Drilling and its affiliates for Consol, CNX, or Knox from January 1, 2008, to the present were requested. Noah Horn’s counsel provided documents believed to be responsive, including the relevant 2012 contract. Contradicting trial representations, Knox/Consol’s counsel had previously seen the 2012 contract. Noah Horn filed a Motion for Protective Order to quash the subpoena or limit the documents to attorney review. Gasco acknowledged the subpoena was premature and sought limited expedited discovery for the 2011 contract only. Following a hearing, the Motion for Protective Order was deemed moot, and a protective order was issued on May 3, 2013, requiring Knox/Consol to produce the 2011 contract.

During a Rule 30(b)(6) deposition on June 13, 2014, Gasco sought information about drilling contracts from June 1, 2010, to December 31, 2011. Knox/Consol's counsel claimed a good-faith search for contracts, including with Noah Horn, but did not find the 2012 contract, without detailing their search process. During the deposition, it was confirmed that Knox/Consol had a contract with Noah Horn, but only the 2011 contract was discussed. Gasco was aware of Noah Horn's 2012 drilling work but did not inquire about the governing agreement until after withdrawing the initial subpoena. The decision to grant or deny a motion for a new trial is at the district court's discretion, as per Federal Rule of Civil Procedure 59(a).

A motion for a new trial can be granted if the verdict is deemed to contradict the evidence, is based on false evidence, or would lead to a miscarriage of justice. A party seeking a new trial must demonstrate misconduct under Federal Rule of Civil Procedure 60(b)(3), proving by clear and convincing evidence that the misconduct hindered their ability to present their case. Gaseo argues for a new trial based on three points regarding the 2012 Noah Horn Contract: (1) alleged misconduct by Knox/Consol for not disclosing the contract during deposition; (2) denial of the opportunity to use the contract for impeachment; and (3) exclusion of the contract as substantive evidence. The court, however, finds that Gaseo has not established the misconduct claim, as it failed to show that it was significantly impeded in presenting its case. The court emphasizes the importance of finality in judgments, noting that the case has already gone to trial twice and that Gaseo has not proven that the contract was improperly withheld, as it fell within the relevant deposition topics.

The 2012 Noah Horn Contract, which involved drilling services for Knox/Consol in 2012, 2013, and 2014, was not considered by Albert when discussing the 2010 and 2011 contracts, as Gasco had focused on the 2011 drilling contract. Despite knowing about Noah Horn's involvement in 2012, Gasco failed to thoroughly investigate this contract, not questioning witnesses or requesting relevant documents until December 2016, after discovery had closed. Gasco's lack of inquiry indicated it deemed the 2012 contract unimportant, and Knox/Consol's oversight in not addressing it during discovery does not absolve Gasco of its duty to investigate. The court emphasized that the 2012 contract was not critical to Gasco's case, as the main issue was whether Knox/Consol's actions in 2011 suggested an intention to revive the expired 2008 Drilling Contract, a matter unrelated to the later contract. Gasco's assertion that the 2012 contract implied an intention to renew the 2008 contract was dismissed, as the 2012 agreement was structured differently and would contradict the notion of an existing take-or-pay contract with Gasco. The case cited by Gasco, Schultz v. Butcher, is not applicable due to key differences in circumstances surrounding the failure to produce evidence.

The withheld document was crucial in determining the defendant's negligence, the central issue of the case, whereas the 2012 Noah Horn Contract had only minimal relevance. Although a withheld document does not need to be outcome-determinative to warrant a new trial, it must be relevant under Fed. R. Evid. 402; irrelevant evidence is inadmissible. Evidence with only slight relevance may be excluded if it risks confusing issues, causing undue delay, or wasting time, per Fed. R. Evid. 403. The 2012 Noah Horn Contract would likely have caused such confusion. Gasco's counsel unfairly surprised Knox/Consol's counsel by disclosing this contract on the trial's third day, and should have shared it promptly upon receipt due to discovery obligations. Gasco's delayed disclosure suggests strategic intent rather than compliance with good faith. The burden of proving misconduct or an inability to fully present its case has not been met by Gasco. Both trials resulted in findings that Gasco failed to demonstrate mutual assent, bolstered by evidence of a mistake by Knox/Consol that Gasco should have recognized. Any minor prejudice to Gasco from not mentioning the contract during deposition is outweighed by the necessity for litigation finality, leading to the decision to uphold the jury’s verdict.

Regarding impeachment, Gasco claims Knox/Consol inaccurately testified that they did not use contract purchase orders for drilling contracts or solicit bids prior to entering drilling contracts. Gasco sought to use the 2012 Noah Horn Contract as evidence against these assertions; however, this contract was executed six months post-Addendum and does not pertain to Knox/Consol's practices at the time of the Addendum. Therefore, it cannot be used to impeach testimony about those practices, as no witness testified that Knox/Consol had never engaged in similar drilling contracts.

Knox/Consol's opening statements suggested that contract purchase orders were not used for drilling contracts and that such contracts were always the result of competitive bidding. However, the jury was instructed that attorneys' statements do not constitute evidence. Knox/Consol contended that Ben Ratliff should have recognized the uniqueness of the Addendum process, indicating a mistake on their part. The 2012 Noah Horn Contract does not undermine this narrative. Although Gaseo sought to use the 2012 Noah Horn Contract to contradict Knox/Consol’s witnesses, the evidence was subject to a Rule 403 balancing test, which found that its probative value was outweighed by potential unfair prejudice and confusion it could cause. The court found no error in excluding this evidence for impeachment.

Gaseo also argued for the introduction of the 2012 Noah Horn Contract as substantive evidence, despite failing to disclose it in pretrial disclosures per Federal Rule of Civil Procedure 26(a)(3)(A). The court referenced Rule 37, which prohibits introducing undisclosed evidence unless justified. The court evaluated factors such as surprise to the opposing party, ability to remedy the surprise, trial disruption, importance of the evidence, and the nondisclosing party's rationale. After considering these factors, the court maintained that the evidence's relevance was limited, and allowing it would surprise Knox/Consol's counsel and cause delays. Gaseo's late disclosure of the document, received a week prior, was deemed unjustified, especially given the constraints of the five-day trial. The court emphasized the jurors' burden and found no adequate reason to disturb the jury's verdict, affirming the exclusion of the evidence and denying Gaseo a third trial to present it.

Gaseo claims entitlement to a new trial due to alleged errors in jury instructions regarding mutual assent. Gaseo argues that the instructions improperly focused on Knox/Consol’s subjective state of mind rather than the objective standard required for mutual assent under Virginia law. The adequacy of jury instructions is assessed based on whether they clearly and accurately convey the controlling legal principles without causing confusion. The Fourth Circuit emphasizes considering the jury instructions as a whole and not nitpicking individual components. A party challenging an instruction carries a heavy burden, and even flawed instructions must result in significant prejudice to warrant overturning a defense verdict.

Under Virginia law, mutual assent, essential for a legally enforceable contract, requires that both parties have a shared understanding of the terms. This standard is objective, meaning a party's true but unexpressed intentions are irrelevant if their words and actions suggest otherwise. Gaseo specifically contests a jury instruction stating that for a contract to exist, there must be a mutual understanding of every material term, indicating that the intent of the parties can be demonstrated through direct or indirect evidence. The instruction further states that if a party’s conduct reasonably indicates an intention to agree, their unexpressed contrary intention is immaterial. It also notes that if one party is aware of a mistake regarding the agreement, then there is no contract due to a lack of meeting of the minds.

Gaseo raises concerns regarding the jury form's reference to "mutual assent" and the phrase "meeting of the minds," questioning whether the jury was adequately instructed to evaluate mutual assent objectively. The court asserts that the jury instructions accurately reflected the law, emphasizing that a party's intent can be established through its "word, act, or conduct." The instruction clarified that if a party's expressions lead a reasonable person to believe in a genuine agreement, any unexpressed contrary intent is irrelevant. This view aligns with a Fourth Circuit endorsement, affirming that the jury's decision on mutual assent should rely on objective circumstances.

Gaseo criticizes the term "meeting of the minds," claiming it suggests subjective intent, yet Gaseo had proposed similar language in its own instructions, undermining its argument for a new trial. The court cites Virginia contract law, which consistently upholds the meeting of the minds doctrine, and notes that the phrase "distinct intent common to both" is established legal terminology. Gaseo further disputes the last paragraph of Instruction 11, arguing it contains erroneous dicta; however, the court maintains that it is bound by the appellate court's ruling that knowledge of a mistake negates mutual assent. Gaseo's own arguments and trial statements have repeatedly emphasized the necessity of determining whether it knew or should have known about the mistake. The court concludes that the "snap up" language in Instruction 11 accurately conveys that Gaseo cannot benefit from a known mistake, reinforcing its position that Gaseo's case centers on specific communications and documents.

Gaseo has maintained that the case should hinge solely on the express communications between the parties at the time the Addendum was signed, arguing that Shumaker’s signature renders the matter straightforward and negates the relevance of either party’s knowledge or intent. This perspective has been consistently rejected as contrary to applicable law. The jury rightly examined the context surrounding the Addendum's transmission and execution, including prior interactions between the parties, market conditions, and extensive communications Ben Ratliff had with his counsel. The jury determined that a reasonable person in Ratliff's position would have recognized that Knox/Consol had mistakenly sent the Addendum and did not intend to reactivate the 2008 Drilling Contract. The jury instructions and verdict form were found to accurately reflect the relevant law, and Gaseo's request for a new trial based on these instructions was denied.

Gaseo also claimed the jury's verdict contradicted the clear weight of the evidence, asserting that the executed Addendum established mutual assent as a matter of law. Under Rule 59(a)(1)(A), a new trial may be granted if the verdict is against the clear weight of evidence, a standard that is notably high. The court found sufficient evidence supporting the jury's conclusion that Gaseo failed to prove mutual assent; the Addendum and related emails indicated it was meant to extend a contract purchase order in effect as of June 2011, while the 2008 Drilling Contract had already expired. The jury could reasonably infer from the communications at the time of the Addendum that there was no intention to revive the prior contract. Additional evidence demonstrated that Ratliff was aware of the unusual nature of the 2008 Drilling Contract and the declining natural gas market, as well as Knox/Consol’s limited drilling plans for that year, thus reinforcing the jury's verdict.

Gasco's prior drilling contracts with Knox/Consol were established through competitive bidding and negotiations. The Addendum was sent to Gasco by an unfamiliar individual, leading Ben Ratliff to believe it was sent erroneously by Knox/Consol, prompting him to avoid notifying them of the mistake. Although typically not seeking legal counsel before contract agreements, Ratliff consulted his attorney upon receiving the Addendum and continued to do so afterward. He signed an electronic commerce agreement and delayed signing the Addendum for three days. Communication regarding the Addendum was vague, and unlike past practices under the 2008 Drilling Contract, Ratliff did not submit monthly invoices but waited until after the notice deadline to invoice for a full year of standby time, which was disadvantageous to Gasco. He also failed to obtain a purchase order for this invoice, as had been standard procedure. While preparing a bid for further drilling in the Marcellus Shale, Ratliff included unusual protective language regarding other contracts but did not expressly mention the Addendum. Despite having close relationships with Knox/Consol personnel, he did not disclose the Addendum to them or to Gasco's executives and shareholders. An accountant, atypically involved in the invoicing process, participated in discussions regarding the Addendum with Gasco’s attorney. Although Ratliff claimed he believed Knox/Consol intended to revive the 2008 Drilling Contract, his credibility was undermined. The jury concluded that a reasonable person would not have believed that Knox/Consol intended to reinstate the contract based on the circumstances known to Gasco in June 2011. The court found that Gasco had two opportunities to present its case and determined that none of the evidentiary rulings impacted the fairness of the trial. The jury's verdict, affirming that Gasco did not demonstrate mutual assent to revive the 2008 Drilling Contract, was supported by the evidence, leading to the denial of Gasco's motion for a new trial. A separate judgment will be issued in accordance with the jury's verdict, treating Knox and Consol as a single entity for this case.

The parties agreed before the initial trial that Consol had the authority to enter drilling contracts for Knox during the relevant period, though there was no agreement regarding Consol's liability for Knox's contracts. There has been no argument suggesting that Consol and Knox should be treated differently in this matter. Ben Ratliff testified at trial that he did not remember discussing matters with Bolling on that day and challenged the accuracy of a list of attorney-client communications. In contrast, Knox/Consol presented evidence from Ratliff's deposition in which he acknowledged speaking with Bolling on the same day. Two contracts related to drilling rigs were executed on December 22, 2010. In this diversity case, the court will follow the forum state's conflict of law rules as established in Klaxon Co. v. Stentor Elec. Mfg. Co. The 2008 Drilling Contract specifies that governing law is determined by the state where the work is performed, despite the work being in multiple states; however, both parties have consistently asserted that Virginia law is applicable.