State court vacates $90 million award over failed coal deal

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The state Superior Court has vacated $90.3 million in future damages awarded in a coal mining contract dispute because the trial judge calculated the damages based upon the market price of coal from when the case went to trial.

The court upheld the rest of the historic $106.1 million award. The $90.3 million award of future damages was remanded to Allegheny County Court of Common Pleas Judge Joseph M. James to recalculate.

The plaintiffs, two Western Pennsylvania power companies, allege that the defendant coal mine operators breached their contract to deliver several million tons of coal.

As of the spring of 2011, the case of Allegheny Energy Supply v. Wolf Run Mining was the largest verdict reported out of Allegheny County in the previous 10 years, and the largest in all of the southwestern Pennsylvania region in 2011.

The three-judge panel of Judge John L. Musmanno, Judge John T. Bender and Senior Judge Eugene B. Strassburger nixed the future damages last week, saying the damages were calculated based on an incorrect contract date.

Judge Strassburger, writing for the panel Monday, said that, under the Uniform Commercial Code, damages based upon market price and the anticipatory contract breaches "shall be determined according to the price of such goods prevailing at the time when the aggrieved party learned of the repudiation."

That is to say, the value of the future damages should have been calculated based on the price of coal at the time that the plaintiffs realized that the defendant did not intend to live up to the terms of the contract -- not based on the price of coal during the trial.

Both the plaintiffs and the defendants appealed parts of Judge James' decision.

Electricity suppliers Allegheny Energy Supply Co. and Monongahela Power Co. entered into a contract in February 2005 with the defendants to purchase an estimated 20 millions tons of coal, according to the opinion.

The defendants include Wolf Run Mining Co., formerly known as Anker West Virginia Mining Co.; Hunter Ridge Holdings, formerly known as Anker Coal Group; and International Coal Group.

The plaintiffs received notice Aug. 25, 2006, that the defendants would not meet their contractual duties -- the defendants invoked the contract's "force majeure" clause, which is triggered when a catastrophe, natural or otherwise, strikes.

Operations at the mine temporarily ceased during the summer of 2006, which Wolf Run attributed to a collapsing mine roof, the breach of an abandoned gas well and a change in how the federal Mine Safety and Health Administration enforced regulations for mining within the vicinity of gas wells.

"While the full scope of the repudiation may not have been readily apparent, [by] Aug. 16, 2006, Allegheny Energy knew for certain, one, that the agreement" had been compromised.

Judge James, at the Allegheny County Court of Common Pleas, awarded past damages and prejudgment interest of $11.3 million for one mine and $2.5 million in past damages and prejudgment interest for breaches related to another mine.

Both of those parts of the judgment were upheld by the Superior Court.

The appellate court agreed that the defendants' "underperformance" was not excused by the terms of the force majeure clause.

But the court rejected the power suppliers' argument that they spent $84.2 million to buy coal from another source and that their past damages should not have been limited to $11.3 million.

Plaintiffs' counsel Russell J. Ober Jr. of Meyer Unkovic & Scott in Pittsburgh said he couldn't comment because he hadn't yet reviewed the opinion and referred comment to the plaintiffs' general counsel, who could not immediately be reached for comment.

The mining companies' lead attorney, Jeff A. Woods of Wyatt Tarrant & Combs in Lexington, Ky., also could not be reached immediately.

Patricia Dodge and Andrew Noble, also of Meyer Unkovic, were the plaintiffs' co-counsel.

David G. Ries of Thorp Reed & Armstrong in Pittsburgh was defense co-counsel.

legalnews

Amaris Elliott-Engel: aelliott-engel@alm.com or 1-215-557-2354. To read more articles like this, visit www.thelegalintelligencer.com.


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