The Kanawha-Gauley Coal & Coke Company v. Pittston Minerals Group, Inc. , 501 F. App'x 247 ( 2012 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 11-1835
THE KANAWHA-GAULEY COAL & COKE COMPANY,
Plaintiff - Appellee,
v.
PITTSTON MINERALS GROUP, INCORPORATED,
Defendant - Appellant.
No. 12-1037
THE KANAWHA-GAULEY COAL & COKE COMPANY,
Plaintiff - Appellant,
v.
PITTSTON MINERALS GROUP, INCORPORATED,
Defendant - Appellee.
Appeals from the United States District Court for the Southern
District of West Virginia, at Charleston. Joseph R. Goodwin,
Chief District Judge. (2:09-cv-01278)
Argued: October 24, 2012 Decided: December 20, 2012
Before TRAXLER, Chief Judge, KEENAN, Circuit Judge, and R. Bryan
HARWELL, United States District Judge for the District of South
Carolina, sitting by designation.
Affirmed by unpublished per curiam opinion.
ARGUED: Wade Wallihan Massie, PENN, STUART & ESKRIDGE, Abingdon,
Virginia, for Appellant/Cross-Appellee. Marshall R. Hixson,
STITES & HARBISON, PLLC, Lexington, Kentucky, for
Appellee/Cross-Appellant. ON BRIEF: Stephen L. Thompson, BARTH
& THOMPSON, Charleston, West Virginia, for Appellant/Cross-
Appellee. Paul O. Clay, Jr., Charleston, West Virginia; Gregory
P. Parsons, STITES & HARBISON, PLLC, Lexington, Kentucky, for
Appellee/Cross-Appellant.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
Kanawha-Gauley Coal & Coke Company (“KG”) and Pittston
Minerals Group (“Pittston”) bring this cross-appeal, challenging
the judgment of the district court following a bench trial. We
have reviewed the record. For the reasons below, we find no
reversible error and affirm the judgment of the district court.
I.
A.
In January 1998, KG entered into a lease with Kanawha
Development Corporation (“KDC”), a subsidiary of Pittston at the
time. KG agreed to lease several thousand acres of its land in
Fayette County, West Virginia, to KDC for mining purposes in
exchange for receiving wheelage on coal transported across the
premises and royalties on the coal mined from the premises. KDC
also agreed to additional obligations under the lease, which
included paying property taxes and taxes on the coal. In an
agreement 1 attached to the lease, Pittston agreed to serve as a
surety to KDC. 2
1
In the suretyship agreement, Pittston agreed to the
following:
(i) to be jointly bound with [KDC] in the performance
of [KDC’s] covenants set forth [in the lease] to the
same extent as if it had been a joint lessee; (ii) to
hold [KG] harmless from any cost, charge, expense or
(Continued)
3
Pittston sold its interest in KDC to Appalachian Coal
Holdings (“ACH”) in November 2003. Despite Pittston’s attempts
to end its surety relationship, KG declined to modify the
agreement. Both the lease and the agreement, therefore,
remained in effect after ACH’s acquisition of KDC. After
several years passed, the relationship between KG and KDC
declined. KDC ceased mining on the property in mid-April 2008.
By September of that year, KDC had failed to pay property taxes,
as required by the lease, and soon thereafter KDC began failing
to pay royalties on the coal it mined and sold.
In early March 2009, KG and KDC negotiated a payment plan
to bring KDC’s obligations current. Although ACH contributed
loss due to default under [the lease by KDC]; (iii)
that [Pittston] consents in advance to any
modification of [the] lease and that its liability
shall be deemed modified in accordance with any such
modification; (iv) that this guaranty applies to
renewals, extensions and holdover terms of the
[l]ease; (v) that this guaranty shall remain in effect
notwithstanding an assignment of [the lease] or
subletting of the [l]eased [p]remises by [KDC]; . . .
(vii) that any and all agreements, modifications and
supplements hereafter entered into between [KG] and
[KDC] respecting [the] lease and/or [l]eased
[p]remises shall not relieve, change or discharge the
obligations of [Pittston] nor shall the consent of
[Pittston] be required to make any such agreement,
modification or supplements effective.
2
The parties do not dispute the district court’s finding
that the agreement was a suretyship agreement.
4
several hundred thousand dollars on KDC’s behalf, KDC ultimately
failed to make its payments under the new plan. On May 22,
2009, KG sent notice of KDC’s default to KDC and Pittston, 3 and
Pittston received notice five days later. Both companies were
given twenty days to cure the default, but they did nothing. 4
Having received no communication or payment from Pittston by
June 19, 2009, KG gave notice to both KDC and Pittston that it
was terminating the lease.
B.
KG filed suit against Pittston on September 25, 2009,
seeking unpaid royalties, property taxes, and fines. KG also
requested legal costs and attorney’s fees. The district court
denied the parties’ cross-motions for summary judgment; however,
the district court found KG, as a matter of law, “did not have a
duty to enforce its lien against KDC before proceeding against
Pittston, who unconditionally guaranteed KDC's performance under
the lease.” The case then proceeded to trial.
3
Also, on June 10, 2009, KG gave a second notice of default
to KDC and Pittston concerning KDC’s failure to pay the required
taxes and maintain certain insurance coverages required by the
lease.
4
Pittston only contacted ACH to demand indemnification.
5
Following a bench trial, the district court found that KDC
had breached the lease and that Pittston did not prove its
affirmative defense that KG breached its implied duty of good
faith by failing to provide Pittston with timely notice of KDC’s
breaches under the lease. The district court also found that KG
took reasonable steps to mitigate its damages and that
reasonableness did not require KG to initiate litigation to
enforce a landlord’s lien against KDC before proceeding against
Pittston.
The district court ultimately awarded KG $1,047,194.42 in
unpaid royalties, $134,080.32 in unpaid interest on late unpaid
royalties, $15,500 in late payment penalties, and $212,889.89 in
unpaid taxes. It also ruled that KG was not entitled to
attorney’s fees because the suretyship agreement did not
unambiguously provide for the recovery of such fees. The
district court, therefore, entered judgment in favor of KG
against Pittston for a total of $1,409,664.63. Subsequently, KG
moved to alter or amend the judgment, contending that it was
also entitled to post-judgment interest at the rate of 5.25% per
annum for unpaid royalties. The district court, however, denied
its request, and this cross-appeal followed.
6
II.
Pittston first contends that the district court erred in
ruling at the summary judgment stage that KG had no duty under
West Virginia surety law to enforce a landlord’s lien on coal
and equipment owned by KDC. 5 Pittston asserts that, by failing
to enforce the lien, KG impaired the collateral securing the
debt KDC owed to KG. Because the collateral exceeded the debt,
Pittston argues it cannot be held liable as a surety. We review
de novo the district court’s interpretation of West Virginia
state law at the summary judgment stage. See Delebreau v.
Bayview Loan Servicing, LLC, 680 F.3d 412, 415 (4th Cir. 2012).
We find no error in the district court’s interpretation of
West Virginia law. The district court recognized the unique
nature of what the parties refer to as a landlord’s lien,
reasoning that “an unenforced inchoate landlord’s lien creates
an interest entirely different from an interest created by a
secured transaction or lien obtained by attachment, judgment, or
execution.” The statutes cited by the parties codify the common
law remedy of distress, which “authorized [a landlord] to
distrain property of the tenant, and hold it as a sort of pledge
5
The district court assumed for the purpose of its analysis
that KG had a landlord’s lien against the coal and equipment on
the premises; however, it found the lien “inchoate” and held KG
did not have a duty to enforce the landlord’s lien.
7
to secure payment of rent.” Nicholas L. DiVita, Conflicts
Between the West Virginia Landlord’s Lien and Article Nine of
the Uniform Commercial Code, 86 W. Va. L. Rev. 417, 417 (1983);
see also 49 Am. Jur. 2d Landlord & Tenant § 813. The
codification modified the remedy of distress, adding procedural
protections for the tenant, but also giving the landlord the
option to later sell the personal property to satisfy a claim
for rent. W. Va. Code §§ 37-6-12 to -13; DiVita, supra, at 418
The statutory “landlord’s lien” in West Virginia is
therefore a derivative of the distress remedy coupled with the
superior priority of the interest a landlord has in a tenant’s
personal property once it is distrained. “This preferential
right of payment operates as and has been held to constitute a
lien.” DiVita, supra, at 420; see also 49 Am. Jur. 2d Landlord &
Tenant § 813 (“The right to distrain is not a strict lien, but
rather is a peculiar right which is in the nature of a lien.”).
A tenant’s personal property does not become collateral security
for rent until a landlord petitions a court for a distress
warrant, which in turn must be executed by a sheriff. See W. Va.
Code § 37-6-17 (outlining the procedure for obtaining an order
of attachment). The district court characterized the lien as
inchoate; however, the term of art is more relevant in
determining the priority of the landlord’s interest in the
tenant’s personal property compared to other lienholders. See
8
United States v. White, 325 F. Supp. 1133, 1135 (S.D.W. Va.
1971). The priority of KG’s interest is not at issue here.
Instead, the issue simply was whether the character of KG’s
interest in KDC’s coal and equipment was of the kind that
required KG to enforce its lien before proceeding against
Pittston.
West Virginia surety law provides as follows:
[A] creditor [is] bound to use proper care and
diligence in the management and collection of . . .
collateral [securities in his hands], and . . . a
surety is released, to the extent of the loss,
actually sustained, by the negligence of the creditor,
to the same extent as if lost by the positive act of
the creditor.
First Nat’l Bank of Philippi v. Kittle, 71 S.E. 109, 110 (W. Va.
1911). The parties do not dispute the fact that KG never
petitioned a court for an order of attachment or a distress
warrant. While KG may very well have had an interest in KDC’s
personal property under the distress statutes, no specific
collateral was mentioned in the lease to secure the royalties
KDC owed. As such, no collateral was impaired so as to provide
Pittston with a surety defense and reduce the damages KG could
seek from Pittston. Thus, the district court did not err in
9
finding KG “did not have a duty to enforce its lien against KDC
before proceeding against Pittston.” 6
III.
We now turn to our review of the district court’s judgment
following a bench trial. “We review a judgment following a
bench trial under a mixed standard of review-factual findings
may be reversed only if clearly erroneous, while conclusions of
law, including contract construction, are examined de novo.”
Roanoke Cement Co. v. Falk Corp., 413 F.3d 431 (4th Cir. 2005).
A.
Pittston argues that the district court erred in concluding
that KG had no duty to mitigate damages by enforcing its
landlord’s lien. The district court held that, under West
Virginia law, the duty to mitigate “did not require [KG] to
institute a separate, and likely costly, legal proceeding
6
The district court also found Pittston, in the suretyship
agreement, “provided [KG] with an unconditional guaranty of
KDC’s performance under the lease to the same extent as if it
had been a joint lessee.” Likewise, KG contends on appeal that
the language of the suretyship agreement modified the surety
relationship to the extent that Pittston waived its surety
defenses. Due to this Court’s dispositive holding that KG’s
interest was not of the kind to bar proceeding against Pittston,
we need not determine the extent to which the agreement affected
the surety relationship.
10
against its tenant to enforce [a] landlord’s lien.” Indeed, the
district court noted the duty “requires only that an injured
party take reasonable steps to avoid further losses.” We find
no error in the district court’s holding, especially in light of
its finding that KG acted reasonably in negotiating a payment
plan and ultimately terminating the lease to avoid further
losses. See Middle-West Concrete Forming & Equip. Co. v. Gen.
Ins. Co., 267 S.E.2d 742, 747 (W. Va. 1980) (“[A]n injured party
is responsible for doing only those things which can be
accomplished at a reasonable expense and by reasonable
efforts.”).
Pittston next asserts that the district court erred in
finding KG’s notice to Pittston was adequate under the implied
duty of good faith that is owed to a surety. The district court
held the duty of good faith in West Virginia did “not require an
obligor to provide additional notice to a surety.” 7 We find no
error in the district court’s finding.
Under West Virginia law, a creditor “is bound to observe
good faith with the surety.” Leonard v. Cnty. Court of Jackson
Cnty., 25 W. Va. 45 (W. Va. 1884). A creditor “must withhold
7
The district court also found the suretyship agreement
provided no additional notice requirement.
11
nothing, conceal nothing, release nothing which may possibly
benefit the surety.” Id.If a creditor does any act injurious to the surety, or
inconsistent with his rights, or if he omits to do any
act, when required by the surety, which his duty
enjoins him to do, and the omission proves injurious
to the surety, in all such cases the latter will be
discharged, and he may set up such contract as a
defense to any suit brought against him, if not at
law, at all events in equity.
Id.Nothing in the record suggests KG, in not notifying
Pittston before May 22, 2009, withheld or concealed information
from Pittston. Moreover, assuming that KG had a landlord’s lien
to enforce and that KG had a duty to enforce it before
proceeding against Pittston, no collateral that may have
possibly benefited Pittston had been released by KG before the
notice of default and Pittston’s right to cure was communicated.
Indeed, Pittston’s argument merely concerns KG’s failure to give
Pittston earlier notice of KDC’s breaches. As the district
court noted, after KG’s notice of default, Pittston had twenty
days to cure the breaches, but failed to do so. In light of
these findings, the district court’s finding was proper.
B.
In its cross-appeal, KG first argues that the district
court erred in denying its request for attorney’s fees. It
12
contends the suretyship agreement executed by Pittston
unambiguously provides for attorney’s fees in the event that KDC
defaults under the lease. We disagree.
Under West Virginia law, each side must bear its own
attorney’s fees absent “express statutory or contractual
authority for reimbursement.” Corp. of Harpers Ferry v. Taylor,
711 S.E.2d 571, 574 (W. Va. 2011) (citing Sally-Mike Props. v.
Yokum, 365 S.E.2d 246, 248 (W. Va. 1986)). The district court,
in denying attorney’s fees, relied on Harris v. Allstate
Insurance Company, 540 S.E.2d 576 (W. Va. 2000), and found “the
agreement between [KG] and Pittston does not unambiguously
provide for the recovery of attorney fees and costs.” The
agreement at issue in Harris included a provision “to defend,
indemnify and hold [Allstate] harmless from and against any and
all judgments, awards, liabilities, settlements, or other costs
arising from such litigation, claim, or other action.” Id. at
579. The West Virginia Supreme Court of Appeals found the
language unambiguously provided for the recovery of attorney’s
fees. Id.We agree with the district court that a general agreement
“to hold [KG] harmless from any cost, charge, expense or loss
due to default under [the lease by KDC]” does not unambiguously
provide for the recovery of attorney’s fees and costs. While
the language in the agreement in Harris expressly referred to
13
“costs arising from such litigation, claim, or other action,”
the language here regards only KDC’s default. The provision
reasonably includes costs, charges, expenses, or losses arising
from KDC’s default, such as the payment of unpaid royalties and
property taxes. Deviating from the normal rules of West
Virginia common law regarding the payment of attorney’s fees,
however, requires more clarity. If the parties specifically
intended for the recovery of attorney’s fees and costs under the
suretyship agreement, they were capable of expressing their
intent to do so unambiguously.
Our finding is supported by a provision of the lease that
required KDC to “save harmless and defend, including paying or
causing to be paid the reasonable fees and expenses of counsel
reasonably selected by [KG], [KG] from all claims, loss, damage
or injury to persons and property arising out of, from or
incident to [KDC’s] performance of [the lease.]” (emphasis
added). This express agreement between KG and KDC for the
recovery of KG’s attorney’s fees and costs in suits by third
parties amplifies the ambiguity of the suretyship agreement,
which made no express reference to attorney’s fees. Indeed, the
breach alleged by KG here was not KDC’s failure to indemnify KG
for some third party claim connected to the premises.
Furthermore, no other provision in the lease between KG and
KDC automatically authorizes attorney’s fees in the event of a
14
default. An arbitration agreement, for example, governs “any
disagreement or dispute between [KG] and [KDC] as to any
covenants, agreements or conditions of [the lease], or as to the
performance or nonperformance thereof.” But that agreement only
provides that “costs [of the arbitrators] may be assessed to
either [KG] or [KDC], or both of them,” and that “any costs,
fees, or taxes incident to enforcing an [arbitration] award
shall . . . be charged against the party resisting such
enforcement.” It makes no sense to require Pittston, as a
surety, to pay attorney’s fees and costs when it is unclear KDC,
as the principal to the lease, would be required to do so.
Accordingly, the district court properly found the suretyship
agreement did not unambiguously authorize attorney’s fees and
costs.
KG also contends that the district court erred in finding
it was not entitled to post-judgment interest at a rate
amounting to 5.25% per annum. Specifically, KG asserts that
language in the lease setting a rate of prime (3.25%) plus 2% to
unpaid royalties applies to the judgment as well. We disagree.
The standard rate applied to post-judgment interest equals
“the weekly average 1-year constant maturity Treasury yield, as
published by the Board of Governors of the Federal Reserve
System, for the calendar week preceding.” 28 U.S.C. § 1961(a).
This rate is applied in diversity cases. Forest Sales Corp. v.
15
Bedingfield, 881 F.2d 111, 113 (4th Cir. 1989). However,
despite the rate provided in § 1961(a), parties may “ ‘stipulate
a different rate, consistent with state usury and other
applicable law.’ ” Carolina Pizza Huts, Inc. v. Woodward, 67
F.3d 294 (4th Cir. 1995) (unpublished table decision) (quoting
Hymel v. UNC, Inc., 994 F.2d 260, 266 (5th Cir. 1993)).
We find the district court properly denied KG’s motion to
alter or amend the judgment in order to apply a 5.25% post-
judgment interest rate. In denying the motion, the district
court cited the doctrine of merger, which it explained was “the
basic principle that a contract merges into the judgment.”
Under the doctrine of merger, any contractual rights are
extinguished as they are “changed into a matter of record and
merged in the judgment, and the plaintiff’s remedy is upon the
later security while it remains in force.” J. & G. Const. Co. v.
Freeport Coal. Co., 129 S.E.2d 834, 838 (W. Va. 1963) (internal
quotation marks omitted).
Because of the doctrine of merger, other circuits have
required that the parties first “specify a post-judgment
interest rate” using “clear, unambiguous and unequivocal
language.” Westinghouse Credit Corp. v. D’Urso, 271 F.3d 96, 102
(2d Cir. 2004); see also Society of Lloyd’s v. Reinhart, 402
F.3d 982, 1004 (10th Cir. 2005); Kotsopoulos v. Asturia Shipping
Co., 467 F.2d 91, 95 (2d Cir. 1972) (“Once a claim is reduced to
16
judgment, the original claim is extinguished and merged into the
judgment; and a new claim, called a judgment debt, arises. A
single rule should govern interest on any such debt, the nature
of the original claim having become irrelevant under the
doctrine of merger.” (citation omitted)). These opinions are
consistent both with the law of this circuit and the common law
of West Virginia. See Carolina Pizza Huts, 67 F.3d 294; State ex
rel. State Bldg. Comm’n v. Moore, 184 S.E.2d 94, 109 (W. Va.
1971) (“[I]f the contract provides for a certain rate of
interest until the principal sum is paid . . . the contract
governs until the payment of the principal or until the contract
is merged in a judgment.”).
Reviewing the lease, we find no express agreement to
overcome the doctrine of merger and § 1961(a). Specifically,
the agreement was that “[a]ny payment not promptly made by [KDC]
to [KG] shall bear interest from the date due at two percentage
(2%) points per annum above the prevailing prime interest rate
then charged by Bank One, West Virginia, N.A.” Without the
necessary clear, unambiguous, and unequivocal language
indicating the parties’ express intent to agree on a post-
judgment interest rate, a finding otherwise is unwarranted.
17
IV.
Based on the foregoing, we affirm the judgment of the
district court.
AFFIRMED
18