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Covol Fuels No. 4 LLC v. Pinnacle Mining Co., LLC

United States Court of Appeals, Fourth Circuit

March 3, 2015

COVOL FUELS NO. 4, LLC, a Utah limited liability company, Plaintiff -- Appellant,
PINNACLE MINING COMPANY, LLC, a Delaware limited liability company, Defendant -- Appellee

Argued January 28, 2015

Page 105

Appeal from the United States District Court for the Southern District of West Virginia, at Beckley. (5:12-cv-04138). Irene C. Berger, District Judge.



Thomas Vincent Flaherty, FLAHERTY SENSABAUGH BONASSO PLLC, Charleston, West Virginia, for Appellant.

Timothy J. Downing, ULMER & BERNE LLP, Cleveland, Ohio, for Appellee.


Alan L. Sullivan, James D. Gardner, SNELL & WILMER L.L.P., Salt Lake City, Utah, for Appellant.

Wm. Scott Wickline, Christopher D. Pence, HARDY PENCE PLLC, Charleston, West Virginia; Joseph A. Castrodale, Paul R. Harris, Matthew T. Wholey, ULMER & BERNE LLP, Cleveland, Ohio, for Appellee.

Before KING and FLOYD, Circuit Judges, and DAVIS, Senior Circuit Judge. Judge King wrote the majority opinion, in which Senior Judge Davis joined. Judge Floyd wrote a separate opinion dissenting in part and concurring in part.


Page 106

KING, Circuit Judge.

From 2008 to 2011, Covol Fuels No. 4, LLC (" Covol" ) and Pinnacle Mining Co., LLC (" Pinnacle" ) were parties to a business agreement wherein Covol conducted coal fines recovery operations at Pinnacle's mine in Wyoming County, West Virginia (the " Pinnacle mine" ). After it became economically unfeasible for Covol to continue those recovery operations, it initiated this civil action in the Southern District of West Virginia, alleging claims for breach of contract, tort, and unjust enrichment. Pinnacle moved for summary judgment, which was awarded as to all claims. See Covol Fuels No. 4, LLC v. Pinnacle Mining Co., LLC, 14 F.Supp.3d 724 (S.D. W.Va. 2014) (the " Opinion" ).[1] Covol has appealed the district court's award of summary judgment on its contract and tort claims. As explained below, there are genuine issues of material fact that must be resolved with respect to Covol's breach of contract claim. On the other hand, we agree with the Opinion that Covol's tort claims are barred by the so-called " gist of the action doctrine." We therefore affirm in part, vacate in part, and remand.



The Pinnacle mine includes several stages of operations through which coal is recovered, beginning with mining coal from the Pocahontas Number 3 seam.[2]

Page 107

That extracted material goes through Pinnacle's " wash" or " prep" plant (the " wash plant" ), which strips coal from waste (the " refuse material" ). Pinnacle then pumps the refuse material through a slurry line and into its nearby Smith Branch impoundment (the " impoundment" ).

The impoundment is a ten-acre, man-made pond created by a dam on the downstream side of the impoundment, on the Smith Branch of Pinnacle Creek, near Pineville, West Virginia. It measures 200-feet deep at the greatest depth, runs nearly a mile in length, and is between 500- and 1000-feet across. The refuse material settles into the impoundment, which is filled with water. Pinnacle is able to pump water out of the impoundment and into a so-called " toe pond" downstream. From there, the water may either be pumped into an underground reservoir (and then back into Pinnacle's wash plant) or released, where it flows into Pinnacle Creek, the Guyandotte River, and, eventually, to the Ohio River, the Mississippi River, and the Gulf of Mexico.

The refuse material contains fine-grained coal (" coal fines" ) not captured by the wash plant. If refuse material is lifted from the impoundment, it can be processed to extract those coal fines, which can be sold for various industrial purposes.[3] In October 2006, Beard Pinnacle, LLC (" Beard" ) initiated coal fines recovery operations at the Pinnacle mine, wherein it dredged the impoundment for refuse material, which it processed at an adjacent facility (the " processing facility" ).



In February 2008, Covol executed a series of contracts with various Pinnacle affiliates, whereby Covol took over Beard's operations.[4] The principal contract at issue is the Coal Purchase and Refuse Recovery Agreement (the " Agreement" ).[5] The Agreement -- a fully integrated contract -- was executed on February 15, 2008, and imposed a five-year term, with the option for the parties to mutually agree to renew for additional one-year terms. Covol was authorized to unilaterally terminate the contract under section 12 of the Agreement if its operations became economically unfeasible. The Agreement designates that it shall be governed by West Virginia law. See Agreement § 27.

Pursuant to the Agreement, Covol agreed to purchase and process " all or part of" the refuse material located in the impoundment, and to handle and process that material " in such a way which does not interfere with Pinnacle's Mining Operations." See Agreement § 4. Pinnacle disclaimed any representation or warranty as to the " character or quality or amount of the Refuse Material Covol removes or receives."

Page 108

Id. § 20. Pursuant to section 18 of the Agreement, Pinnacle was required to provide Covol with: an area near the impoundment where Covol could install and maintain its equipment; ingress and egress across Pinnacle's property; and " any right-of-way reasonably needed" for Covol to " transport the Refuse Material from the [impoundment] to the processing [facility]." [6] Two provisions of the Agreement -- sections 7 and 8 -- imposed contractual duties relating to applicable laws. Section 7 required Covol and Pinnacle, in performing their obligations under the Agreement, to " comply in all respects with and undertake all responsibilities under" applicable state and federal laws.[7] Relatedly, section 8 required the parties to obtain and maintain any necessary permits or licenses.[8]

The Agreement provided for both Pinnacle and Covol to profit from the recovered coal fines. Sections 2 and 3 set out that Covol would sample and test the recovered coal fines to determine their quality. Depending on the levels of ash and moisture, the coal fines would be categorized as either " met coal" or " steam coal." See Agreement § 2. Met coal -- which contains lower ash and moisture content and is therefore more valuable -- would be purchased by an affiliate of Pinnacle, while Pinnacle had an option -- but no obligation -- to purchase steam coal. See id .


Covol paid $14 million to purchase the processing facility, and then immediately spent another $4 million renovating it. Covol's coal fines recovery operations were under way by the summer of 2008. A number of issues and events arose in the following years that ultimately made it economically unfeasible for Covol to continue in the business. Covol ceased its operations at the Pinnacle mine in 2012.

The biggest obstacle Covol faced related to the water level of the impoundment. To extract the refuse material, Covol utilized a dredge machine with a mechanical arm that dipped into the water and dragged refuse material out of the impoundment. The mechanical arm was 25-feet long, meaning that the dredge could only reach the top 25 feet of water. Covol requested several times that ...

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