American Bar Association
Media Alerts
Media Alerts - Covol Fuels No. 4 LLC v. Pinnacle Mining Co. LLC -- Fourth Circuit
Decrease font size
Increase font size
April 4, 2015
  Covol Fuels No. 4 LLC v. Pinnacle Mining Co. LLC -- Fourth Circuit
Headline: The "Right Way" for Courts to Interpret the "Right of Way Reasonably Needed"

Areas of Law: Contract, Tort

Issues Presented: Whether the terms of a contract were sufficiently ambiguous to establish a genuine issue of material fact. Whether the gist of the action doctrine barred tort claims because the claims were simply breach of contract claims masquerading as tort.

Extended Summary: Covol Fuels No. 4 ("Covol") and Pinnacle Mining Company ("Pinnacle") were parties to a five-year business agreement whereby Covol was to take over coal fine recovery operations at the Pinnacle mine in West Virginia. Under the terms of the agreement Pinnacle disclaimed any representation or warranty as to the character or quality of the coal fines and was required to provide Covol with "any right-of-way reasonably needed" for Covol to transport the refuse material. Covol was authorized to unilaterally terminate the contract if recovery operations became economically unfeasible.

After coal is mined, it is refined through a wash process. This wash process strips the extracted coal from any waste material. Small quantities of coal are left in the waste material that is separated out. These quantities, known as coal fines, have commercial value. At the Pinnacle mine in West Virginia, after the wash process, waste material was pumped through a slurry line into an impoundment pond. Covol would then use a dredge machine to collect the coal fines from the pond. Covol paid $14 million upfront and an additional $4 million in renovations for the facilities and equipment used for coal fines extraction. However, the dredging machine used by Covol could only reach down 25 feet into the 200-foot impoundment. Therefore, the water level of the impoundment was pertinent to Covol's success in extracting and selling coal fines.

While the initial Mine Safety and Health Administration plan required that any dredging of the impoundment be performed concomitant with an incremental lowering of the water level, Pinnacle adopted a protocol (to comply with West Virginia regulations for management of selenium pollution) that prevented Pinnacle from lowering the water level of the impoundment two years into the agreement. Also, in 2011, Pinnacle upgraded its wash plant, causing the quality of coal fines left after the wash to be significantly lowered. That year, due to the stagnant water level and low quality coal fines, it became economically unfeasible for Covol to continue coal fines recovery operations at the Pinnacle mine.

Covol filed suit against Pinnacle in 2012, alleging claims for 1) breach of contract based on both the terms of the agreement and the implied covenant of good faith and fair dealing; 2) a tort claim for fraudulent concealment; 3) a tort claim for negligent misrepresentation; and 4) a claim for unjust enrichment. Pinnacle was awarded summary judgment on all counts. The District Court found the contract unambiguous. Because the contract's natural meaning did not give Covol the right to access material through a lowering of the water level in the impoundment, the claim for breach of the implied covenant of good faith and fair dealing could not stand. With regard to the two torts claims, the court held that both claims were barred by the gist of the action doctrine. Finally, the court determined that the agreement was an express contract that could not be the basis of an unjust enrichment claim.

Covol appealed its breach of contract claim and both tort claims to the United States Court of Appeals for the Fourth Circuit. As to Covol's breach of contract claim, the Fourth Circuit held that the language in the agreement that Pinnacle must "provide... any right of way reasonably needed by Covol to transport the Refuse Material from the impoundment" could be interpreted in at least three ways. Because the language was ambiguous, the Fourth Circuit found extrinsic evidence should have been considered to determine Pinnacle's duties, and therefore, there was a genuine issue of material fact to be resolved by the trier of fact on remand. The Fourth Circuit held that since Covol had raised a genuine issue of material fact as to the terms of the agreement, summary judgment should not have been granted on the claim for breach of the implied covenant of good faith and fair dealing.

Finally, as to Covol's tort claims of negligent misrepresentation and fraudulent concealment, the Fourth Circuit agreed with the lower court that those claims were barred by the gist of the action doctrine. This doctrine prevents a litigant from bringing tort claims when the conduct complained of is based in contract. The court found that both tort claims simply recast Covol's claim for breach of contract. Therefore, the court affirmed the award of summary judgment on the tort claims and vacated the award for summary judgment with respect to Covol's claim for breach of contract.

In dissent, Judge Floyd found that nothing in the contract, including the right-of-way provision, required Pinnacle to lower the level of the impoundment. Judge Floyd found the majority's interpretation of the term right-of-way to be anything but ordinary, and therefore, would have affirmed the lower court's determination in full.

To read the full opinion, please click here.

Panel: Judges King and Floyd, and Senior Judge Davis

Argument Date: 01/28/2015

Date of Issued Opinion: 03/03/2015

Docket Number: Case No. 14-1395

Decided: Affirmed in part, vacated in part, and remanded by published opinion.

Case Alert Author: Bethany Henneman, Univ. of Maryland Carey School of Law

Counsel: ARGUED: Thomas Vincent Flaherty, FLAHERTY SENSABAUGH BONASSO PLLC, Charleston, West Virginia, for Appellant. Timothy J. Downing, ULMER & BERNE LLP, Cleveland, Ohio, for Appellee. ON BRIEF: Alan L. Sullivan, James D. Gardner, SNELL & WILMER L.L.P., Salt Lake City, Utah, for Appellant. Wm. Scott Wickline, Christopher D. Pence, HARDY PENCE PLLC, Charleston, West Virginia; Joseph A. Castrodale, Paul R. Harris, Matthew T. Wholey, ULMER & BERNE LLP, Cleveland, Ohio, for Appellee.

Author of Opinion: Judge King

Case Alert Circuit Supervisor: Professor Renée Hutchins

    Posted By: Renee Hutchins @ 04/04/2015 04:17 PM     4th Circuit  

FuseTalk Enterprise Edition - © 1999-2018 FuseTalk Inc. All rights reserved.

Discussion Board Usage Agreement

Back to Top