Sumner seeks money from LG&E related to Armstrong Coal dispute

Coal executive Douglas Sumner is now trying to collect from Louisville Gas & Electric the money that he says he is owed under a deal to help Armstrong Coal make coal sales.

Last decade, when Armstrong Coal was first getting into the western Kentucky coal business around 2006, it engaged Sumner, who was prominent in that business, to help it make coal sales. Sumner said he was well-established in the coal business and had connections at LG&E.

Sumner then filed suit in August 2011 against Armstrong Coal at the U.S. District Court for the Western District of Kentucky, claiming that Armstrong Coal was trying to cut him out of commissions on coal sales he helped arrange.

Armstrong Coal responded with a claim that it later found out, after it hired him, that Sumner’s reputation was so bad that his presence actually hurt its sales efforts and that it was not improperly cutting Sumner out of anything. Said an April 2 Armstrong filing about Sumner’s background: “In fact, Sumner had a lengthy negative experience in the coal business in Western Kentucky; namely, he was the President and Chief Executive Officer of Centennial Resources, a coal company which he subsequently caused to go into bankruptcy, as well as caused it to default on a substantial number of coal supply contracts and similar agreements.”

On Nov. 12, Armstrong Coal filed with the court a motion to turn back a writ of garnishment that Sumner lodged with the court. “Sumner initiated this litigation to recover commissions he claims are owed under a Consulting Agreement, pursuant to which Sumner was supposed to negotiate contracts for the sale of coal by Armstrong to certain utilities, including LG&E,” Armstrong wrote. “The Complaint asserted claims for breach of the Consulting Agreement and breach of the implied duty of good faith and fair dealing arising from alleged underpayment and/or non-payment of residuals under three contracts between Armstrong and LG&E: Contract No. J07032, Contract No. J10007, and Contract No. J10009. The Complaint also sought a declaratory judgment regarding the meaning of the terms of the Consulting Agreement. On February 22, 2012, Sumner filed a ‘Motion for Partial Summary Judgment,’ seeking a declaratory judgment and a judgment regarding Armstrong’s ‘liability’ for breach of contract.”

The court granted Sumner’s motion in part and denied it in part, saying that Armstrong Coal is liable to compensate Sumner at the rate provided in the Consulting Agreement for all coal sold under Contract No. J07032, as amended, and Contract No. J10009. It dismissed the compensation claim for Contract No. J10007.

On Sept. 26, Armstrong filed a timely notice of appeal of that part of the judgment which found Armstrong liable to pay Sumner commissions under Contract No. J10009. On Oct. 10, Sumner filed a notice of cross-appeal of the court’s ruling with respect to Contract No. J10007. The parties have received a briefing schedule from the U.S. Sixth Circuit Court of Appeals and were scheduled to participate in mediation with the Sixth Circuit’s Mediation Office on Nov. 13.

Sumner wants $0.35/ton under two contracts

On Nov. 7, Sumner filed an application for writ of garnishment to LG&E which claims as the amount due: “$.35 per ton for all coal shipped to LG&E under Contract No. J07032 and Contract No. J10009.” Sumner’s application is defective because the proposed order of garnishment does not specify the amount of the judgment Sumner seeks to garnish, Armstrong Coal claimed.

All three forms which Sumner submitted in his application for an order of garnishment contain a field for “Amount Due.” However, in each of these forms Sumner filled in the “Amount Due,” not with a specific amount, but with “$.35 per ton” for all coal under the two contracts. “The reason for that is simple: Sumner’s judgment has not been reduced to a liquidated amount,” Armstrong Coal said. “Although the rate at which Sumner is to be compensated under the Consulting Agreement is clear from the terms of the contract, there is nothing in the record regarding the amount of tons of coal shipped under these contracts or the amounts already paid to Sumner under these contracts. Sumner plainly admitted in his Complaint that he has already been paid substantial sums under Contract No. J07032. Although LG&E may be able to determine how many tons of coal Armstrong has shipped under Contract No. J07032 and Contract No. J10009, LG&E has no way to determine the amounts already paid to Sumner. Thus, the ‘Amount Due’ indicated in Sumner’s application for garnishment is meaningless to the proposed garnishee. Sumner’s application for a writ of garnishment to LG&E is therefore defective and must be denied.”

The calculation of Sumner’s damages under the court’s summary judgment is ministerial because it is a simple matter of arithmetic (i.e. the number of tons shipped under the contracts multiplied by Sumner’s rate of commission, less any amounts Sumner has already been paid), Armstrong wrote. “Thus, the Court’s summary judgment is properly appealable to the Sixth Circuit. However, two of the essential inputs for this equation are nowhere to be found in the record: the amount of tons shipped and the amounts already paid to Sumner. Sumner is required to produce or request evidence of these two inputs and complete the ‘ministerial’ calculation prior to applying for a writ of garnishment. Sumner’s failure to reduce his judgment to an amount certain renders his application for writ of garnishment defective, even though the judgment is properly appealable to the Sixth Circuit.”

Details of two of the contracts in question, all sourced out of Armstrong’s western Kentucky mines, are contained in Sept. 12 fuel reports that LG&E and affiliate Kentucky Utilities filed with the Kentucky Public Service Commission. LG&E shares coal contracts with Kentucky Utilities. Neither Sept. 12 fuel report shows a current contract J10007. An earlier court filing indicated that contract J10007 was only for 600,000 tons just in calendar 2010.

  • J07032, executed in December 2007, runs until end of 2016, calls for 2.1 million tons per year in 2011-2015 and 900,000 tons in 2016, current price of $29.63/ton for Quality 1 (there are two coal qualities covered in the contract).
  • J10009, executed in December 2009, runs until end of 2016, calls for 1.25 million tons per year in 2011-2013 and 750,000 tons per year in 2014-2016, current price of $46.94/ton.
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.