CONSOL getting pulled into Xcoal, Southern Coal legal dispute

A legal battle between Southern Coal Sales Corp. and Xcoal Energy & Resources over aborted deals for Xcoal to buy export coking coal out of Central Appalachia from Southern has spilled over to CONSOL Energy (NYSE: CNX), which uses XCoal to sell some of its coal in Asian markets.

In October, Southern Coal Sales, controlled by coal operator Jim Justice II, subpoenaed Pittsburgh-based CONSOL for some of its records in support of its pending lawsuit against Xcoal and Xcoal founder Ernie Thrasher, which is being handled in the U.S. District Court for the Western District of Virginia. On Oct 30, Xcoal and Thrasher filed a motion with the local court, the U.S. District Court for the Western District of Pennsylvania, to quash the subpoena. Xcoal is also based in Pennsylvania.

“Plaintiff Southern Coal Sales Corporation (‘Southern’) served a subpoena to produce documents on non-party Consol Energy, Inc. (‘Consol’) on October 16, 2012,” said the memorandum supporting the motion to quash. “That subpoena is improper for multiple reasons, and should be quashed. First, Southern seeks documents that contain highly sensitive, confidential, and proprietary information belonging to Defendant Xcoal and Consol. Such information should not be disclosed to any third parties, let alone Southern, a direct competitor of both Xcoal and Consol. Second, as set forth in the Complaint, the subject matter giving rise to the underlying lawsuit – e.g., the statements that Defendant Ernie L. Thrasher made to Southern as well as the purchase orders and amended purchase orders that Xcoal and Southern allegedly entered into starting in March 2011 – are separate from, and entirely unrelated to, the independent business relationship between Xcoal and Consol. Thus, the subpoena seeks irrelevant information and should be quashed. Third, in addition to impermissibly seeking highly confidential and proprietary information that is irrelevant to the underlying lawsuit, the subpoena also places an undue burden on Consol by seeking documents that are available from a much more convenient source: Xcoal.”

Lawsuit is over a series of purchase orders for met coals

In describing the basis of the June 18 lawsuit pending in the Virginia court, Xcoal said that starting in March 2011, Southern and Xcoal allegedly entered into a series of purchase orders pursuant to which Xcoal allegedly agreed to purchase coal from Southern. Southern alleges that under the purchase orders, Xcoal was obligated to purchase 3.91 million tons of coal in exchange for about $560m.

According to Southern, however, Xcoal has refused to accept delivery of the coal pertaining to the purchase orders. Southern further alleges that Xcoal’s failure to perform under the purchase orders, coupled with Xcoal’s continuing assurances and promises of performance, led Southern to agree to amend the purchase orders in February to extend Xcoal’s performance deadlines until March 2013. According to Southern, Xcoal has continued to fail to perform under the purchase orders, as amended.

  • Count I of the June 18 complaint asserts a claim for breach of contract based on Xcoal’s alleged refusals to accept coal under the purchase orders and for Xcoal’s anticipated failures to perform in the future.
  • Count II of the complaint alleges a fraud claim based on purported misstatements that Thrasher made to Southern, upon which Southern allegedly relied.
  • Count III, for “Duress,” alleges that Southern only agreed to extend Xcoal’s performance under the purchase orders because its survival depended on it, a fact of which it claims Xcoal was aware and used to its advantage.

Southern is seeking compensatory damages for all counts, as well as consequential and punitive damages for Count II and attorney’s fees.

On Oct. 26, Senior District Judge James Turk, working in the Virginia court, granted Xcoal’s motion to dismiss the fraud claim without prejudice should Southern decide to refile the claim and plead it as required with more particularity, Xcoal noted. Judge Turk also forbade Southern to seek compensatory damages on the duress claim and struck Southern’s request for attorney’s fees.

Southern wants various Xcoal/CONSOL documents

The Oct. 16 subpoena to CONSOL sets forth numerous categories of documents that Southern seeks, including: all documents relating or pertaining to CONSOL’s sales to Xcoal since Jan. 1, 2011; all documents relating to any agreement by Xcoal to act as CONSOL’s agent either executed since Jan. 1, 2011, or otherwise covering that period; and all documents relating to CONSOL’s purchases from Xcoal, coal deliveries to Xcoal, and receipts of coal from Xcoal since Jan. 1, 2011.

In addition, Southern seeks “all documents relating or pertaining to any communications between Xcoal…and Consol…concerning Southern” as well as “all documents relating or pertaining to communication [sic] to which Xcoal was a party concerning Southern.” Finally, Southern seeks from CONSOL all documents relating to any other agreements between Xcoal and CONSOL since Jan. 1, 2011, regardless of subject matter.

On Nov. 5, Xcoal asked the Pennsylvania judge to let it withdraw, without prejudice to re-file at a later date, the motion to quash. That request was approved by the judge on Nov. 6.

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.