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Knox Energy, LLC v. Gasco Drilling, Inc.

United States District Court, W.D. Virginia, Abingdon Division

November 3, 2016

KNOX ENERGY, LLC, Plaintiff,
v.
GASCO DRILLING, INC., Defendant.

          OPINION AND ORDER

          James P. Jones United States District Judge

         J. Scott Sexton, H. David Gibson, Michael J. Finney, Abigail E. Murchison, and Scott A. Stephenson, Gentry Locke, Roanoke, Virginia, for Plaintiff and Counterclaim Defendants; Thomas R. Scott, Jr., Benjamin A. Street, and Jason D. Gallagher, Street Law Firm, LLP, Grundy, Virginia, for Defendant and Counterclaim Plaintiff.

         In advance of trial, after briefing and oral argument, I determine motions in limine and a motion for summary judgment in this Virginia breach of contract action based upon the court's diversity jurisdiction.

         The case has been tried before, and on that occasion I granted judgment as a matter of law pursuant to Rule 50(a) in favor of Knox Energy, LLC, and Consol Energy, Inc. (collectively, “Consol”), the plaintiff and counterclaim defendants. Knox Energy, LLC v. Gasco Drilling, Inc., 54 F.Supp.3d 489, 501 (W.D. Va. 2014) (holding that no reasonable jury could find that there was mutual assent to the alleged contract). On appeal by defendant and counterclaimant Gasco Drilling, Inc. (“Gasco”), the court of appeals reversed, finding that, “[g]iven this mix in the evidence . . . without weighing the evidence or making credibility determinations, ” the issue of mutual assent to the alleged contract was a matter for the jury. Knox Energy, LLC v. Gasco Drilling, Inc., 637 F. App'x 735, 739 (4th Cir. 2016) (unpublished).

         In its opinion, the court of appeals recited the basic facts as follows:

In 2008, Consol, a natural gas producer, and Gasco, a drilling company, entered into a drilling agreement that lasted for two years, or until Gasco completed its work. Under the contract, Consol agreed to pay a “standby” rate of $10, 800 per day, per drilling rig, for time when Gasco was on site but not actively drilling. While drilling, Gasco received an even higher fee. Additionally, the 2008 agreement contained a special “take-or-pay” provision, which guaranteed that Gasco would make two rigs available for Consol whenever it requested work. Whether or not Gasco was on site, it provided that Consol would pay the standby rate for 328 days of each twelve-month period. In May 2010, the parties amended the agreement to release one of the rigs from the contract. The remaining rig completed its work, and the contract terminated, in July 2010.
The essential dispute in this case is whether Gasco and Consol reinstated that 2008 contract in 2011. On June 6, 2011, Consol emailed Gasco a document titled “Addendum to Contract Purchase Order.” Clyde Ratliff, Gasco's CEO, signed the Addendum and returned it on June 14, 2011. Consol returned the countersigned Addendum to Gasco on July 29, 2011. The Addendum stated that Gasco and Consol “agree to modify the ‘term' provision of the contract purchase order to read as follows:” that the new “term of this agreement shall be for one year from the date set forth above and shall be automatically extended for one year terms unless either party gives written notice” of termination at least thirty days before renewal. The Addendum was “effective” on June 13, 2011. The “contract purchase order” referenced in the Addendum was the 2008 drilling agreement, “PO No. 5600000439.” . . . .
For a year after signing this Addendum, Consol did not ask Gasco to drill, and neither party communicated about the Addendum. Then, in June 2012, Gasco sent Consol a $7, 084, 800 bill for 328 days of take-or-pay standby charges. Contending that it had mistakenly signed the Addendum, Consol refused to pay. Additionally, Consol filed this diversity action for declaratory relief. In response, Gasco sent Consol a second $7, 084, 800 invoice as liquidated damages for early termination, and counter-sued for breach of contract.

Id. at 736-37. The court of appeals held that “[i]f Gasco knew or should have known that Consol made a mistake, we agree there was no mutual assent. But Gasco presented sufficient evidence that, if credited, a reasonable jury could have found in its favor.” Id. at 738.

         I.

         Meaning of “Date Set Forth Above” in Addendum.

         The fully executed Addendum contains the following language:

         Addendum to Contract Purchase Order

         This Addendum to contract purchase order (“Addendum”) is entered into effective this 13th day of June, 2011, by and between Consol Energy, Inc. and its affiliates (“Company”) and Gasco Drilling, Inc. (“Contractor”).

         Whereas, Company and Contractor are parties to a contract purchase order (PO No. 5600000439) (the “Contract Purchase Order”); and Whereas, Company and Contractor agree to modify the “Term” provision of the Contract Purchase Order as provided herein.

         Therefore, intending to be legally bound, Company and Contractor agree as follows.

         1. Company and Contractor agree to modify the “Term” provision of the Contract Purchase Order to read as follows:

Term:

         Subject to Company's right to cancel this contract purchase order as set forth below, the term of this agreement shall be for one year from the date set forth above and shall be automatically extended for one year terms unless either party gives written notice to the other party of the termination of the agreement at least thirty (30) days before the end of the current one year term.

In witness whereof, the parties have caused their duly authorized representatives to execute this agreement intending it to be effective on the effective date.

(Countercl. Pl.'s Trial Ex. 11(b), ECF No. 264-25.)

         Consol's Motion for Summary Judgment and Gasco's Second Motion in Limine both involve the meaning of the words “one year from the date set forth above” in the Addendum. Consol contends that this language means that Gasco's purported contract is impossible of performance, and thus unenforceable, because it would extend a “term entirely in the past.” (Mem. Supp. Mot. Summ. J. 15, ECF No. 331.) In its motion, Gasco calls this a “hyper-technical legal interpretation” and argues that there is no evidence that either party intended such a result. (Mem. Supp. Second Mot. Limine ...


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