West Virginia coal company takes eminent domain case to U.S. Supreme Court

West Virginia coal leaseholder Beacon Resources on Dec. 15 asked the U.S. Supreme Court to take up its appeal of a verdict out of the West Virginia court system that rejected the company’s compensation claims over coal that couldn’t be mined because the state took over its coal property under eminent domain so it could build a highway.

In this case, a West Virginia jury awarded $24 million as just compensation to the operator of an active surface coal mine in an eminent domain case in which the West Virginia Department of Transportation routed a federal highway through the mine, effectively halting the entire mining operation. On appeal of the jury verdict, the Supreme Court of Appeals of West Virginia reversed the verdict and remanded the case for a new trial based on the trial court’s refusal to instruct the jury not to consider any lost profits when determining just compensation.

The following questions were presented to the U.S. Supreme Court:

  • Does the government’s “categorical duty” under the Fifth Amendment to pay just compensation when it takes an interest in property, include a consideration of “lost profits” as an element of damages where the “lost profits” are not a result of the taking of a business operating on the surface of the property, but rather, stem from the government taking the minerals being mined?
  • Did the Supreme Court of Appeals of West Virginia violate a Beacon Resources right to due process when it set aside a jury verdict even though the alleged “error” was not preserved at trial and provided detailed instructions to the State of West Virginia on how to litigate the case differently on re-trial?

Although Western Pocahontas Properties LP and WPP LLC (collectively called “WPP”) own the tract of land at issue in Tucker County, West Virginia, and were parties to the proceedings below, those entities did not contest the amount initially deposited by the state for the surface and its 8% royalty interest in the coal taken by the state. The amount initially deposited by the state was based solely on the 8% royalty interest and failed to account for the leasehold interest of Beacon Resources, the company said.

The state, through its power of eminent domain, routed a portion of Corridor H directly through an active surface coal mine, effectively thwarting petitioner’s ability to continue its active mining operations on its leasehold property. Because of the condemnation, Beacon was forced to cease its mining operation and close its active surface mine in July 2012, leaving 525,244 tons of mineable coal in place.

As the owner of the leasehold interest, the president of Beacon Resources, Jason Svonavec, testified in this case based on his knowledge and experience, including prior productivity of the mine, that the fair market value of the company’s 187-acre leasehold interest was $84 million. Svonavec based his valuation on a contract to sell coal dated August 2011. The contract set a price of $120.00 per ton for metallurgical coal, which Svonavec testified made up 90% of the coal mined by Beacon. The contract also set a price of $46.00 per ton for steam coal, which Svonavec said made up the remaining 10% of sales. Svonavec estimated that there were 525,244 tons of coal under the acreage taken by the state, and another 1,000,000 tons of now-unmineable coal in the residue.

Svonavec further estimated that his mine was operating at about an 80% “recovery” rate, thus taking into account the amount of coal lost during mining. After taking into account his extraction and production costs, Svonavec testified that just compensation for the area taken would be $27 million and $57 million for the residue, a total of $84 million.

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.