Allegheny Energy Supply v. Wolf Run Mining Co. ( 2015 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
ALLEGHENY ENERGY SUPPLY : IN THE SUPERIOR COURT OF
COMPANY, LLC; AND MONONGAHELA : PENNSYLVANIA
POWER COMPANY, :
:
Appellees :
:
v. :
:
WOLF RUN MINING COMPANY, :
FORMERLY KNOWN AS ANKER WEST :
VIRGINIA MINING COMPANY, INC., :
AND HUNTER RIDGE HOLDINGS, INC., :
FORMERLY KNOWN AS ANKER COAL :
GROUP, INC., :
:
Appellants : No. 1853 WDA 2013
Appeal from the Order entered on October 24, 2013
in the Court of Common Pleas of Allegheny County,
Civil Division, No. GD 13-005047
BEFORE: DONOHUE, OTT and MUSMANNO, JJ.
MEMORANDUM BY MUSMANNO, J.: FILED JANUARY 30, 2015
Wolf Run Mining Company (“Wolf Run”), and its parent company,
Hunter Ridge Holdings, Inc. (“Hunter Ridge”), appeal from the trial court’s
October 24, 2013 Order declaring that Wolf Run cannot take advantage of a
price renegotiation clause set forth in a 2005 Coal Sales Agreement (“the
Agreement”) between Wolf Run and the appellees, Allegheny Energy Supply
Company, LLC, and Monongahela Power Company (collectively, “Allegheny
Energy”). We affirm.
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On February 17, 2005, Allegheny Energy entered into the Agreement
with Wolf Run,1 whereby Allegheny Energy agreed to purchase all coal from
existing reserves of Wolf Run’s Sycamore No. 2 Mine. Wolf Run’s
performance under the Agreement was guaranteed by Hunter Ridge, 2 the
parent company of Wolf Run.
Prior to the execution of the Agreement, Allegheny Energy entered into
a separate contract with Wolf Run for delivery of coal from Wolf Run’s
Sycamore No. 1 Mine. Wolf Run closed its Sycamore No. 1 Mine before the
required tonnage under that contract was delivered. To account for this
shortfall, Section 1.3 of the Agreement specified that delivery shortfalls from
the Sycamore No. 1 Mine would be covered by coal from the Sycamore No. 2
Mine, at the prices that had been previously established for the Sycamore
No. 1 Mine.3
1
At that time, Wolf Run was known as Anker West Virginia Mining Company,
Inc. (“Anker West Virginia”).
2
Hunter Ridge was formerly known as Anker Coal Group, Inc. (“Anker
Coal”). In March of 2006, shortly after the parties entered into the
Agreement, Anker Coal was acquired by, and consolidated into, International
Coal Group (“ICG”). Following the consolidation, Anker West Virginia
changed its name to Wolf Run, and parent company Anker Coal changed its
name to Hunter Ridge. Under the terms of the acquisition, Wolf Run
remained a subsidiary of Hunter Ridge, while Hunter Ridge became a
subsidiary of ICG. For clarity, we refer to the entities by their present
names, Wolf Run and Hunter Ridge.
3
At the time the parties entered into the Agreement, the existing reserve of
the Sycamore No. 2 Mine was estimated to contain not less than 20 million
tons of coal.
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The Agreement provided that Wolf Run would deliver to Allegheny
Energy (a) throughout 2005 until September of 2006, the actual production
of the Sycamore No. 2 Mine, which was estimated at 500,000 tons;4 (b)
beginning on October 1, 2006, 150,000 tons per month;5 and (c) beginning
in January 2007 through the expiration of the Agreement, 1.8 million tons of
coal per year until the Sycamore No. 2 reserves were exhausted.6
During the summer of 2006, the operations at the Sycamore No. 2
Mine were idled temporarily. As this Court described in a prior appeal,
Wolf Run attributed the closing to the accidental breach of an
abandoned gas well, changes in the enforcement of regulations
for mining within the vicinity of the gas well, and a collapsing
mine roof. As a result, in August 2006, Wolf Run informed
Allegheny Energy that it would be unable to meet its obligations
under the Agreement. On August 25, 2006, Wolf Run issued a
formal force majeure notice pursuant to Section 13 of the
Agreement[,] wherein it averred that the conditions leading to
the idling of the Sycamore No. 2 Mine were beyond its control,
and not the result of its fault or negligence.[FN] To cover the
delivery shortfalls[,] Allegheny Energy purchased coal from third
party suppliers.
4
See Allegheny Energy Supply Co. v. Wolf Run Mining Co., 53 A.3d 53,
56 (Pa. Super. 2012).
5
See id.6
See id.-3-
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[FN] In September of 2007, the Sycamore No. 2 Mine was
reopened, and deliveries of coal to Allegheny Energy resumed,
but production fell below the tonnage required under the
Agreement.
On December 18, 2006, Allegheny Energy instituted a breach of
contract action against Wolf Run, Hunter Ridge and ICG[,] based
on Wolf Run’s failure to perform under the Agreement….
…
On May 3, 2011, [after a bench trial,] the trial court issued a
Memorandum and Verdict in which it found that Wolf Run had
breached the Agreement; the force majeure clause contained in
the Agreement did not excuse Wolf Run’s breach; the defense of
commercial impracticability under Section 2-615 of the Uniform
Commercial Code (U.C.C.) was unavailable to Wolf Run; and
Allegheny Energy was entitled to damages as a result of Wolf
Run’s breach of contract. The trial court awarded damages to
Allegheny Energy in the total amount of $104,103,893.00. [This
award included past damages and prejudgment interest for
breaches related to the Sycamore No. 2 Mine, and past
damages, and prejudgment interest, for breaches related to the
Sycamore No. 1 Mine.]
Allegheny Energy Supply, 53 A.3d at 56 (footnote in original). Both
parties filed post-trial Motions, which the trial court denied. Upon the entry
of judgment, Allegheny Energy and Wolf Run filed timely appeals.
On appeal, a panel of this Court affirmed in part, and vacated and
remanded in part. See id. at 60. Of particular note, this Court affirmed the
trial court’s rejection of Wolf Run’s force majeure defense, because “the
conditions leading to the breach of the Agreement were not beyond the
reasonable control of Wolf Run, and occurred due to Wolf Run’s fault or
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negligence concerning the maintenance and operation of the Sycamore No. 2
Mine.” Id. at 62 (footnote omitted).
As to damages, this Court affirmed the trial court’s calculation of past
damages through 2010. Id. at 64. However, this Court rejected the trial
court’s determination that Wolf Run repudiated the Agreement as of the date
of trial, and the trial court’s use of that date to calculate the award of future
damages. Id. Specifically, this Court observed that, according to the
uncontroverted facts of record, Wolf Run had repudiated the Agreement as
of August 2006. Id. at 65. Accordingly, the Superior Court panel vacated
the award of future damages to Allegheny Energy, and remanded for a re-
calculation of future damages using the market price of coal in August
2006.7 Id. at 66.
A non-jury trial was scheduled to take place, on the issue of future
damages, in May 2013. In the interim, on April 22, 2013, Allegheny Energy
filed an Amended Complaint asserting two counts of breach of the
Agreement, based upon Wolf Run’s failure to deliver sufficient amounts of
coal in 2011 and 2012. In addition, Allegheny Energy sought relief in the
form of a declaration that Wolf Run could not renegotiate the price of its
coal, through the application of a price re-opener provision of the
Agreement. Amended Complaint, ¶¶ 34-55. Wolf Run filed a Motion for
7
As we will discuss infra, the Court excluded from the future damages
calculation the 480,000 tons that Wolf Run was obligated to deliver in 2011
and 2012.
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judgment on the pleadings as to Allegheny Energy’s claim for declaratory
relief, to which Allegheny Energy filed a Cross-Motion for judgment on the
pleadings.
On October 24, 2013, the trial court granted Allegheny Energy’s Cross-
Motion for judgment on the pleadings as to Allegheny Energy’s claim for
declaratory relief. See Memorandum and Order of Court, 11/19/13, at 1
(unnumbered). Wolf Run filed a Motion to certify the trial court’s Order for
immediate appeal, which the trial court denied. Thereafter, Wolf Run timely
filed a Notice of Appeal, and a court-ordered Pa.R.A.P. 1925(b) Concise
Statement of Matters Complained of on Appeal.8
Wolf Run now presents the following claims for our review:
1. Do Uniform Commercial Code [“UCC”] provisions on breach of
installment contracts preclude application of the common law
doctrine of prior material breach to the [Agreement], when the
parties continue to perform the contract?
2. Did the [trial] court err by construing a mathematical formula
as a condition precedent, so as to preclude application of a
pricing provision in the parties’ long-term coal sales
[A]greement?
Brief for Appellant at 3.
Wolf Run challenges the trial court’s grant of judgment on the
pleadings in the form of declaratory relief. Id. at 15.
8
An order declaring the rights of the parties is immediately appealable
pursuant to 42 Pa.C.S.A. § 7532 and Pa.R.A.P. 341(b)(2). As the trial
court’s Order finally declared the rights of the parties under the Agreement,
the matter is properly before this Court for review. See id.
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Our review of the [trial court’s] granting [a] motion for judgment
on the pleadings is limited to whether the court committed an
error of law or whether unresolved questions of material fact
remained. In reviewing a grant of judgment on the pleadings[,]
this Court regards all of the non-moving party’s well-pleaded
allegations as true, and may consider against that party only
those allegations that it has admitted….
Pennsylvania Dep’t of Banking v. NCAS of Delaware, LLC, 948 A.2d
752, 759 (Pa. 2008) (internal citations omitted).
The trial court entered judgment on the pleadings, granting Allegheny
Energy declaratory relief.
In reviewing a declaratory judgment, we are limited to
determining whether the trial court committed a clear abuse of
discretion or error of law. Vernon Township Volunteer Fire
Department, Inc. v. Connor, 579 Pa. 364, 855 A.2d 873, 879
(Pa. 2004) (citation omitted). “An appellate court may not
substitute its judgment for that of the trial court if the
determination of the trial court is supported by competent
evidence.” Id. (citation omitted).
Vanderhoff v. Harleysville Ins. Co., 78 A.3d 1060, 1065-66 (Pa. 2013).
As to issues of law, our standard of review is de novo and our scope of
review is plenary. Generette v. Donegal Mutual Ins. Co., 957 A.2d 1180,
1189 (Pa. 2008).
Wolf Run first claims that the trial court erred when it applied the
common law doctrine of prior material breach, so as to preclude Wolf Run
from invoking the price re-opener provision set forth in Article 9 of the
Agreement. Brief for Appellant at 15. Wolf Run asserts that the Agreement
is a contract for the sale of goods, and, therefore, is governed by the UCC.
Id. at 17. Wolf Run argues that, because the UCC “is a complete
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codification of the law governing contracts for the sale of goods, inconsistent
common law theories not incorporated therein, such as prior material
breach, do not apply.” Id. at 18. According to Wolf Run, Allegheny Energy’s
prior appeal and current pleadings improperly relied upon the common law
doctrine of prior material breach so as to preclude Wolf Run from invoking
the price re-opener provision set forth at Article 9. Id. at 17, 18.
Wolf Run further argues that, pursuant to UCC 2-612(3), an
installment contract is automatically reinstated, after a material breach, if
the non-breaching party demands performance as to future installments, or
accepts ongoing performance “in the absence of seasonable notice of
cancellation.” Id. at 21. Wolf Run asserts that, even if a prior material
breach had occurred, Allegheny Energy reinstated the entire Agreement,
including all corresponding rights and obligations thereunder. Id. According
to Wolf Run, because Allegheny Energy continued to demand future contract
performance, all rights and obligations continued, including Wolf Run’s right
“to negotiate a fair contract price for future shipments of coal demanded by
Allegheny [Energy].” Id. at 22, 23.
Wolf Run also argues that the trial court’s declaratory judgment
creates “an arbitrary and indefensible distinction between Wolf Run’s rights
under the three express pricing provisions in the [Agreement] that set and
adjust the contractual Base Price, or ‘contract rate.’” Id. at 24. Wolf Run
directs our attention to Article 7 of the Agreement, which provides
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adjustments for quality deviations, and Article 8, which allows a semi-annual
adjustment to the Base Price of coal. Id.
Wolf Run challenges the trial court’s interpretation of Section 9.1 of
the Agreement.
When interpreting the language of a contract, the intention
of the parties is a paramount consideration. In determining the
intent of the parties to a written agreement, the court looks to
what they have clearly expressed, for the law does not assume
that the language of the contract was chosen carelessly.
When interpreting agreements containing clear and
unambiguous terms, we need only examine the writing itself to
give effect to the parties’ intent. The language of a contract is
unambiguous if we can determine its meaning without any guide
other than a knowledge of the simple facts on which, from the
nature of the language in general, its meaning depends. When
terms in a contract are not defined, we must construe the words
in accordance with their natural, plain, and ordinary meaning.
As the parties have the right to make their own contract, we will
not modify the plain meaning of the words under the guise of
interpretation or give the language a construction in conflict with
the accepted meaning of the language used.
On the contrary, the terms of a contract are ambiguous if
the terms are reasonably or fairly susceptible of different
constructions and are capable of being understood in more than
one sense. Additionally, we will determine that the language is
ambiguous if the language is obscure in meaning through
indefiniteness of expression or has a double meaning. Where the
language of the contract is ambiguous, the provision is to be
construed against the drafter.
Jerome Markowitz Trust v. Markowitz, 71 A.3d 289, 301 (Pa. Super.
2013) (citation omitted). Finally, “in determining the intent of the
contracting parties, all provisions in the agreement will be construed
together and each will be given effect.... [This Court] will not interpret one
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provision of a contract in a manner which results in another portion being
annulled.” LJL Transp., Inc. v. Pilot Air Freight Corporation, 962 A.2d
639, 647-48 (Pa. 2009) (citations omitted).
In relevant part, Article 9 of the Agreement provides as follows:
9.0 RE-OPENER
9.1 If [Wolf Run’s] total aggregate annual cost per ton of
producing Source Mine[9] coal (in an amount equal to the Annual
Base Amount) during any calendar year … shall exceed … the
Base Mine Price then in effect (as the same may have been
adjusted in accordance with Article 8.0), then [Wolf Run] shall
have the right at any time within ninety (90) days after the end
of such calendar year to give Buyer written notice of its election
to negotiate an adjustment to the Base Price pursuant to this
Article 9.0 …. [Wolf Run] shall furnish to [Allegheny Energy],
upon request therefor, sufficient information concerning [Wolf
Run’s] cost of producing Source Mine coal (other than
information the disclosure of which would breach any
confidentiality agreement or other legal requirement by which
[Allegheny Energy] may be bound) to enable [Allegheny Energy]
to verify whether such condition has been met. Subject to such
limitations, [Allegheny Energy] shall have the right at its
expense to examine, or cause an audit to be made of, the record
books of account of [Wolf Run] with respect to its cost of
production of Source Mine coal.
Agreement, Sections 9.0, 9.1 (footnote added). In the prior action,
accepting the testimony of Wolf Run’s expert, the court recognized a revised
Annual Base Amount of 480,000 tons of Source Mine coal, which amount
was to be subtracted from the calculation of future damages on remand.
Allegheny Energy, 53 A.3d at 65.
9
The Agreement expressly identified Wolf Run’s “Harrison Division Sycamore
No. 2 Mine” as “the ‘Source Mine.’” Agreement at 1.
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Contrary to Wolf Run’s allegation, our review discloses that the trial
court did not apply the common law doctrine of prior material breach.
Rather, the trial court applied the clear and unambiguous language of
Section 9.1. In its November 19, 2013 Memorandum and Order, the trial
court declared that “the provisions of [Article] 9 as to price renegotiation are
not available to [Wolf Run].” Trial Court Memorandum and Order, 11/19/13,
at 1 (unnumbered). In its August 27, 2014 Opinion, the trial court explained
that since Wolf Run has “never produced the contractual [B]ase [A]mount
(either 1.8 million tons per year or the revised 480,000 tons per year), they
cannot exercise the re[-]opener section of the coal sales [A]greement.” Trial
Court Opinion, 8/27/14, at 3. Upon our review of the Agreement, we agree
with the trial court’s interpretation and application of Section 9.1. See id.Section 9.1 provides that the price for coal may be re-opened when
Wolf Run’s cost of producing “Source Mine coal” “(in an amount equal to
the Annual Base Amount) during any calendar year” increases by a
determined percentage. Agreement, Section 9.1 (emphasis added). The
trial court properly gave effect to all of Section 9.1, and correctly determined
that, “[s]ince [Wolf Run has] never produced the contractual Base Amount
(either 1.8 million tons per year or the revised 480,000 tons per year)[, it]
cannot exercise the re-opener section of the … [A]greement.” Trial Court
Opinion, 8/27/14, at 3.
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Wolf Run’s comparison of Section 9.1 to other sections of the
Agreement is unavailing. Although Articles 7 and 8 permit price
adjustments, these adjustments are subject to the limitations set forth in
each section, respectively.
Article 7 permits a price adjustment based upon the quality of the
Source Mine coal:
7.0 PRICING AND PAYMENT
7.1 [Allegheny Energy] shall pay to [Wolf Run], subject to the
quality adjustments contained herein, a base purchase price per
million BTU for all coal delivered hereunder (the “Base Price”) at
the rate of [redacted] F.O.B. the Station. If [Allegheny Energy]
exercises its option to increase the Annual Base Amount
pursuant to Section 1.2, then the Base Price less the
transportation cost allowance set forth in Section 8.5 (as each
may be adjusted in accordance with Article 8.0) (such
remainder, the “Base Mine Price”) applicable to all coal delivered
to Buyer thereafter shall be reduced by an amount equal to
[redacted] % of the Base Mine Price then in effect.
Agreement, Sections 7.0, 7.1 (emphasis added). Section 7.2 of Article 7
permits a price adjustment “[w]henever the coal delivered during any
Sample Period does not conform” to enumerated quality specifications.
Agreement, Section 7.2 (emphasis added). The term “Sample Period,”
defined at Section 4.3 of the Agreement, divides each calendar month into
three, specific Sample Periods. Agreement, Section 4.3. Thus, although
price adjustments are permitted under Article 7, they are restricted by the
enumerated quality specifications, as determined during Sample Periods.
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Similarly, Article 8, Section 8.0, “Base Price Escalation Adjustments,”
permits price adjustments based upon other factors (i.e., labor, medical
costs, steel supplies, etc.). Agreement, Sections 8.0-8.8. Article 8 imposes
specific schedules for adjusting the Base Price of coal, and formulas for
determining the price as of an “Adjustment Date.” Agreement, Sections 8.2-
8.8.
By contrast, Article 9 does not provide for a “Sample Period,” as stated
in Article 7; utilize an “Adjustment Date,” as is provided in Article 8; or
include schedules or formulas for projecting prices. Rather, Article 9
restricts its application to instances where Wolf Run’s “total aggregate
annual cost per ton of producing Source Mine coal (in an amount equal to
the Annual Base Amount) during any calendar year” exceeds a stated
amount. Agreement, Section 9.1 (emphasis added). The clear and
unambiguous language requires that Wolf Run produce an amount equal to
the Annual Base Amount, and that its total aggregate costs exceed the
stated amount.10
By their Complaint underlying the instant appeal, Allegheny Energy
averred that in 2011, Wolf Run delivered only 372,255 tons of coal--107,745
tons below the Annual Base Amount. Complaint, ¶¶ 18-19. Allegheny
Energy further averred that Wolf Run had notified Allegheny Energy that
10
This interpretation is consistent with Section 9.1’s restriction that Wolf
Run may exercise its rights under that Section “any time within ninety (90)
days after the end of such calendar year[.]” Id. (emphasis added).
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production from the Sycamore No. 2 Mine, during 2012, would not make up
the 2011 shortfall. Id. at ¶ 20. In addition, Allegheny Energy asserted that
in 2012, Wolf Run again failed to produce the Annual Base Amount of coal.
Id. at ¶¶ 25-26, 28. Wolf Run does not challenge these averments. Under
these circumstances, we discern no error in the trial court’s interpretation of
Article 9, and its declaration that Wolf Run cannot reopen the price under
Article 9 of the Agreement. Accordingly, we cannot grant Wolf Run relief on
its claim.
Wolf run next claims that the trial court’s declaratory judgment cannot
be sustained “on Allegheny [Energy’s] erroneous interpretation of the
[Agreement].” Brief for Appellant at 26. Wolf Run argues that the record
“lacks a scintilla of evidence” that the parties intended the production of the
Annual Base Amount as a condition precedent to the application of Article 9.
Id. In support, Wolf Run baldly asserts that the requirement for it to
provide “precisely 480,000 tons of coal delivered in trucks carrying 30-40
tons is absurd.” Id. at 27. Wolf Run also argues that “to suggest that an
important condition precedent was expressed by a parenthetical is perhaps
only slightly less absurd.” Id. According to Wolf Run, the Agreement’s
reference to an amount “equal to” the Annual Base Amount is a formula, not
a condition precedent. Id. at 31. According to Wolf Run, the Agreement
“means that[,] regardless how many tons are produced and delivered during
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a calendar year, Wolf Run must calculate its cost per ton based on
production of ‘an amount equal to the Annual Base Amount.’” Id.
Contrary to Wolf Run’s assertions, such an interpretation is not absurd,
and is supported by the clear an unambiguous language of the Agreement.
See Markowitz, 71 A.3d at 301. To re-open the price under Section 9.1,
Wolf Run’s total aggregate costs for production of coal, in an amount equal
to the Annual Base Amount of coal, must exceed the stated amount. In
contrast to Articles 7 and 8, Article 9 provides no adjusted dates, sample
periods, or use formulas to project prices. The trial court’s interpretation is
supported by language in Section 9.1, which requires Wolf Run to provide
Allegheny Energy with notice “within ninety (90) days after the end of the
calendar year in which such increase occurs.” Agreement, Section 9.1.
Accordingly, the trial court’s interpretation and application of Section
9.1 is supported by the clear and unambiguous language of that Section.
Because Wolf Run is not entitled to relief, we affirm the Order of the trial
court.
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 1/30/2015
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