Court issues procedural ruling in Southern Coal, Xcoal court case

A federal judge in Virginia on Oct. 26 issued a procedural ruling in a case where the Southern Coal Sales unit of coal operator Jim Justice II had sued coal marketer XCoal Energy & Resources for allegedly not taking full contract volumes of metallurgical coal that Xcoal was to buy and then re-sell on the export market.

Judge James Turk in the U.S. District Court for the Western District of Virginia was ruling Oct. 26 on a motion from Xcoal and related parties to dismiss counts II and III of the Southern Coal Sales complaint.

They moved to dismiss the fraud claim in Count II on two grounds. First, they argued that the plaintiff failed to plead fraud with the particularity required by court rules. Second, they contended that plaintiff had failed to plead an actionable fraudulent statement because the alleged misrepresentations made by defendant Ernie Thrasher, the head of Xcoal, are not statements of existing material facts but instead, are either trade talk or “puffery” or pertain only to defendants’ intentions to perform the contract. Accordingly, the defendants argue that the statements cannot support a fraud claim under Virginia law.

Defendants also moved to dismiss plaintiff’s duress claim on the grounds that it has not been adequately pled and that duress cannot be asserted as an independent claim, particularly in the absence of any request for relief in the form of the voiding of a contract.

In March and June 2011, SCS and Xcoal entered into a series of purchase orders. Under the purchase orders, Xcoal was obligated to purchase from SCS approximately 3.91 million tons of coal and to pay SCS over $560m for the coal, with a delivery period ending March 2012. Xcoal, however, routinely refused to accept delivery of the contractually designated volumes of this coal, SCS said.

Count II of the complaint alleges a fraud claim. ln that claim ,SCS alleges that, during the negotiations between SCS and Xcoal regarding the possible sale of coal, Thrasher inquired as to how many tons of metallurgical and soft coking coal SCS had available for sale and that Thrasher represented he could sell all of it. The lawsuit’s Count II said Thrasher with these statements fraudulently induced SCS to sign the purchase orders.

“The Court disagrees with Defendants’ characterization of the allegedly fraudulent statements,” the judge ruled. “Contrary to Defendants’ assertions, not all of the statements are statements regarding an intent of future performance, or mere ‘trade talk’ or ‘puffery.’ Instead, at least one of the alleged misrepresentations – Mr. Thrasher’s statement that he ‘had just returned from Asia and had contracts for delivery and therefore he could pay SCS for its coal product the stated prices which became part of the purchase orders’ – is a statement of a present material fact.”

The judge added: “While it may have induced SCS to enter into the contracts with Defendants, and while it may have led them to believe that Defendants had the capability to meet its promises under the contract, the statement by Thrasher that he ‘had contracts for delivery’ is a statement that (as alleged) was ‘false when made.’ It is not one that only became false when the promisor failed to keep his word. If false, it could support a claim for fraudulent inducement. Accordingly, the Court determines that amendment would not be futile, and that Plaintiff will be permitted to amend its Complaint as to its fraud claim.” So the judge dismissed Count II without prejudice, meaning SCS could amend and re-file it.

In Count III, SCS asserted a claim of duress, alleging that defendants improperly exerted duress in order to get SCS to agree to amend the purchase orders, after they were originally worked out, to extend the delivery period under those contracts. ln their written motion, defendants contended that the complaint failed to allege facts sufficient to support a duress claim and thus that it is subject to dismissal. Notably, however, the two cases upon which defendants rely were both decided at the summary judgment stage, not on a motion to dismiss, the judge wrote.

“Defendants raised an additional argument for the first time at the hearing, arguing that typically, the only relief that can be afforded as a result of a duress claim is the voiding of a contract (here, presumably that would be the voiding of the amendments to the purchase orders, which were the contracts alleged to have been executed as a result of duress),” the judge wrote. “Defendants correctly note, however, that Count III does not request relief in the form of voiding the Amendments to the Purchase Orders, but instead seeks compensatory damages. Because this issue was not raised in Defendants’ written motion, however, and Plaintiff has not had the opportunity to respond to it in writing, the Court declines to grant relief on this ground. Plaintiff may wish to consider Defendants’ arguments when drafting its Amended Complaint, and the Court will entertain a subsequent motion to dismiss on this ground, should the Amended Complaint seek relief on a duress claim other than avoiding of the amendments.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.