United States District Court, W.D. Virginia, Abingdon Division
Harbert, III, J. Scott Sexton, H. David Gibson, Michael J.
Finney, Abigail E. Murchison, and Scott A. Stephenson, Gentry
Locke Rakes & Moore, LLP, Roanoke, Virginia, for
Plaintiff and Counterclaim Defendants;
G. Bird, Kellogg, Hansen, Todd, Figel & Frederick, PLLC,
Washington, D.C., and Thomas R. Scott, Jr., Benjamin A.
Street, and Jason D. Gallagher, Street Law Firm, LLP, Grundy,
Virginia, for Defendant and Counterclaim Plaintiff.
OPINION AND ORDER
P. Jones, United States District Judge
breach of contract action arising under Virginia law, a jury
found for the plaintiff and counterclaim defendants, Knox
Energy, LLC and Consol Energy, Inc., on the ground that there
was no mutual assent to enter into the alleged contract. The
defendant and counterclaim plaintiff, Gasco Drilling, Inc.,
has moved for a new trial pursuant to Rules 59(a) and
60(b)(3) of the Federal Rules of Civil Procedure. For the
reasons that follow, I will deny the Motion for New Trial.
Energy, LLC (“Knox”), a natural gas producer,
filed this action seeking a declaratory judgment that no
contractual relationship existed between it and Gasco
Drilling, Inc. (“Gasco”), a gas drilling company.
Gasco in turn filed a Counterclaim against both Knox and an
additional party, Consol Energy, Inc.
(“Consol”). In its Counterclaim, Gasco sought
recovery of more than $14 million under an expired drilling
contract that Gasco claimed had been resurrected by a form
addendum that Consol sent to Gasco. Without objection, I
ruled prior to trial that Gasco would be treated as a
plaintiff and had the burden of proof as to the existence of
an enforceable contract.
case was first tried in September 2014. At that trial, at the
close of Gasco's case-in-chief, I granted judgment as a
matter of law pursuant to Rule 50(a) in favor of Knox/Consol.
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 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App'x 735, 739 (4th Cir. 2016) (unpublished).
opinion, the court of appeals recited the basic facts as
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
court of appeals affirmed several rulings I had made prior to
the first trial. Id. at 739-40. These included my
ruling, based on an addendum dated May 10, 2012, that
Gasco's potential recovery was limited to standby charges
associated with only one drilling rig. Op. & Order, Sept.
4, 2014, ECF No. 236. I had also declined to exclude parol
evidence of Knox/Consol's mistake, which Gasco argued was
irrelevant, confusing, and misleading. In affirming that
ruling, the court of appeals found that “Consol had to
present some evidence of a mistake in order to prove that its
mistake was obvious to Gasco.” 637 F. App'x at 740.
The court of appeals further noted that “both parties
proposed essentially the same jury instructions, that
‘[i]f a person's words or actions warrant a
reasonable person in believing that he intended real
agreement, his contrary, but unexpressed, state of mind is
immaterial.' Thus the jury would have been instructed
that its decision on mutual assent must rest on the objective
the second trial in this case, the jury found for
Knox/Consol. The first question on the special verdict form
1. Has Gasco proved by a preponderance of the evidence that
Gasco and Consol had a meeting of the minds - mutual assent -
such that the expired 2008 drilling contract was reinstated
by the Addendum, with a distinct and common intent and
understanding by both parties as to all of its material
Form, ECF No. 409. The jury checked “No” and, in
accordance with the form's instructions, did not answer
the remaining questions.
following is a summary of the evidence presented at the
2011, Clyde Beaver “Ben” Ratliff was the
president and part owner of Gasco. Ben Ratliff's brother,
Jerry Ratliff, and Ben's two sons, Chris and Brian
Ratliff, were also part owners of the company. In early 2008,
at its peak, Gasco employed about 180 people.
an International Association of Drilling Contractors
(“IADC”) contract form titled “Drilling Bid
Proposal and Daywork Drilling Contract - U.S., ”
Knox/Consol and Gasco entered into a drilling contract
effective January 10, 2008. The contract covered natural gas
horizontal wells in eastern Tennessee in the first quarter of
2008. A daywork drilling contract is different from a footage
drilling contract, which the parties would have used for
drilling vertical wells. The day rate stated in the January
2008 contract was $10, 800 per day without drill pipe and
$11, 800 per day with drill pipe. The January 2008 contract
also stated a standby rate of $10, 800 per day. The standby
rate was to be paid even when Gasco was not performing any
drilling. In the “Special Provisions” section of
the contract form, the parties had stated certain additional
terms, including that the vertical part of the well would be
drilled at a footage rate of $21.50 per foot.
January 2008 contract had a term of one year, but the parties
cancelled that contract before its term ended. In June 2008,
Knox/Consol and Gasco entered into a take-or-pay contract
because Knox/Consol wanted a guarantee that rigs would be
available to drill anytime they were needed.
“Take-or-pay” means that Knox/Consol agreed to
pay Gasco to have rigs and personnel ready to drill for a
specified number of days per year, regardless of whether any
drilling actually took place. This new 2008 take-or-pay
contract (“2008 Drilling Contract”) differed from
the January 2008 contract it superseded in that the earlier
contract did not entitle Gasco to any payment prior to when
it was called to mobilize its equipment and go to the well
site. The take-or-pay provision benefitted Gasco by
guaranteeing that Gasco would receive payment for a specified
number of days, but it disadvantaged Gasco by preventing it
from using the dedicated rigs to perform other drilling work
at higher rates.
2008 Drilling Contract used the same IADC form that the
parties had used for the earlier contract. The take-or-pay
provision, written into the Special Provisions part of the
shall pay for 328 days per 12-month period, at the following
rates per day, per rig:
$ 13, 500.00/ with pipe
$ 12, 000.00/ without pipe
$ 10, 800.00/ standby
Contractor must have rig available to work or these rates
will be adjusted for days rig is not available to work. The
days that rig is drilling top hole on Footage Rate will be
deducted from the 328 day total.
Gasco Trial Ex. 2 at 6, ECF No. 387-2.
2008 Drilling Contract covered a larger geographical area
than the earlier contract - eastern Tennessee, eastern
Kentucky, Virginia, and southern West Virginia. Gasco drilled
about five wells under the January 2008 contract, and about
eight additional wells under the 2008 Drilling Contract
during the rest of 2008.
February 2009, Knox/Consol and Gasco amended the 2008
Drilling Contract to reduce the standby rate from $10, 800
per day per rig to $6, 800 per day per rig. Gasco received
nothing in exchange for reducing the rate. The amendment
provided that when drilling recommenced, the standby rate
would increase to $10, 800. Gasco resumed drilling in
September 2009, but Ben Ratliff did not begin charging the
higher standby rate because he forgot about the rate
increase. Knox/Consol did not notify Gasco of the billing
mistake and has never offered to pay the uncharged amounts.
and Knox/Consol amended the 2008 Drilling Contract again in
May 2009 to reduce the day rate from $12, 500 to $11, 500.
The parties also changed the footage rate from $22.50 to
$20.50. Gasco did not receive any consideration in exchange
for reducing these rates. In May 2010, while the 2008
Drilling Contract was still in effect, the parties again
amended the contract to require one of the drilling rigs to
continue drilling until the five listed wells were completed,
which occurred in August 2010. This May 2010 amendment had
the effect of extending the term of the 2008 Drilling
Contract for a little more than one month. Gasco did not
submit a bid for this contract extension. The amendment also
released the other drilling rig from the contract after the
completion of a specified well, meaning that Knox/Consol
would no longer have to pay the standby rate for that rig.
the 2008 Drilling Contract was in effect, Ben Ratliff
prepared an invoice after Gasco finished drilling each well.
His secretary would then contact Knox/Consol to obtain a
purchase order number for the invoice. Knox/Consol sent a
different purchase order number for each invoice, along with
a lengthy list of terms and conditions that Ben Ratliff was
required to sign before Knox/Consol would pay the invoice.
All of the seventeen invoices Gasco issued under the 2008
Drilling Contract contained a unique purchase order number.
February 2009, Randy Albert and Kent Wright of Knox/Consol
instructed Gasco to submit invoices monthly. Ben Ratliff
testified that Gasco's normal practice was to bill for
standby time at the end of the year and deduct any days in
which the rigs had been used for drilling. In accordance with
the instruction from Albert and Wright, Gasco submitted
monthly invoices under the 2008 Drilling Contract.
2010, Knox/Consol invited Gasco to submit a bid for drilling
in 2011. The person who sent the bid request, and the person
to whom Gasco submitted a bid, was Cecil Sagraves, Contract
Sourcing Specialist for Consol. The contract form that
Knox/Consol sent to Gasco when soliciting the bid indicated
that the contract would cover eastern Tennessee and eastern
Kentucky. The bid solicitation sought bids on a footage
basis. Knox/Consol instructed bidders to bid the project
based on using a three-person crew, whereas the 2008 Drilling
Contract had provided for a four-person crew. Knox/Consol
also indicated that the new contract would not provide for a
submitted two bid proposals. In the first, Gasco proposed day
rates of $11, 800 without pipe and $12, 300 with pipe, as
well as a footage rate, for a four-person crew. The $12, 300
day rate was $200 less than the modified day rate under the
just-completed 2008 Drilling Contract. Gasco's first
proposed bid also included a standby rate of $10, 800,
despite Knox/Consol's indication that this contract would
not include a standby rate. Gasco's second proposal
stated day rates of $12, 500 without pipe and $12, 850 with
pipe; the size of the crew was not specified. The second
proposal again included a standby rate of $10, 800. In its
second proposal, Gasco stated that the term would be one year
from January 2011 with no extensions or renewals. The
proposal did not include an early termination penalty, nor
did it include any take-or-pay provision. Ben Ratliff
testified that because Knox/Consol did not request a
take-or-pay provision, he knew he would likely be wasting his
time by including one in the proposal, given the state of the
natural gas market at the time.
did not win the contract for 2011 drilling; the contract was
instead awarded to Noah Horn Well Drilling (“Noah
Horn”), one of Gasco's competitors. Gasco learned
from Sagraves that the contract had been awarded to Noah
Horn. In early 2011, Ben Ratliff heard a rumor that the Noah
Horn rig that was performing drilling for Knox/Consol was
experiencing mechanical problems.
6, 2011, Gasco received an email from Janet Fahrenhold at
Knox/Consol with an attachment titled Addendum to Contract
Purchase Order (“Addendum”). The email stated:
Attached is a [sic] Addendum to your current Contract
Purchase Order No. 5600000439. The purpose of the Addendum is
to revise the Term of the Contract Purchase Order to have it
extend automatically from year to year unless either party
gives the other party notice of intent not to extend at least
thirty days before the end of the current one year term.
Also, because of changes in our SAP system we have to
renumber our existing contracts. Please be advised that the
number of your contract has been changed from 4600000856 to
5600000439 Please sign and return the attached addendums via
email within 2 business days.
Gasco Trial Ex. 7 at 1, ECF No. 387-7. The attached form read
to Contract Purchase Order
Addendum to contract purchase order (“Addendum”)
is entered into effective this ___ day of ___, 20 ___, by and
between Consol Energy, Inc. and its affiliates
(“Company”) and ___ (“Contractor”).
Company and Contractor are parties to a contract purchase
order (PO No. ___) (the “Contract Purchase
Order”); and Whereas, Company and Contractor agree to
modify the “Term” provision of the Contract
Purchase Order as provided herein.
intending to be legally bound, Company and Contractor agree
Company and Contractor agree to modify the “Term”
provision of the Contract Purchase Order to read as follows:
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.
Except for the modification of the “Term”
provision as set forth in paragraph 1 of this Addendum, all
other provisions of the Contract Purchase Order shall
remain in full force and effect.
In witness whereof, the parties have caused their duly
authorized representatives to execute this agreement
intending it to be effective on the effective date.
Id. at 2.
office manager, Freda Rasnake, called Ben Ratliff to tell him
about the email. Ben Ratliff testified that he did not
understand the email, so he instructed Rasnake to respond to
the email and request from Knox/Consol a copy of the contract
to which the Addendum would apply. That afternoon, Rasnake
wrote to Fahrenhold, “We have reviewed your email with
the attached Addendum.
please forward a copy of Contract #4600000856.” Gasco
Trial Ex. 8, ECF No. 387-8. Ben Ratliff did not know
Rasnake did not receive a response from Fahrenhold, she
emailed again two days later to ask for the contract a second
time. That day, Rasnake received an email from Erin Bywaters
of Knox/Consol. The subject line of the email read,
“FW: Contract 5600000439 - copy of contract, ”
and the body of the email stated:
We would like to draw your attention to the attached
contract: 5600000439 From ECC Contract: 4600000856.
Please contact Sourcing Specialist for questions related to
the referenced contract.
Todd Shumaker 724-485-4349
Trial Ex. 10 at 1, ECF No. 387-10. Attached to this email was
the 2008 Drilling Contract and several related documents. The
email identified Bywaters as a member of the Material and
Supply Chain Management department. Ben Ratliff had seen
Bywaters' name previously on a purchase order email sent
by Knox/Consol. He testified that in 2009, Rex Cooper of
Knox/Consol had told him that because of some restructuring,
communications would be coming from the Material and Supply
Chain Management department. A letter and email sent by
Knox/Consol in February 2009 also indicated that the company
was making certain changes in how it did business with
suppliers and moving toward electronic procurement. Ben
Ratliff testified that when he received the email from
Fahrenhold with the 2008 Drilling Contract attached, it was
clear to him that Knox/Consol wanted to reinstate that
after receiving the email from Bywaters, Rasnake received an
email from Fahrenhold, which appears to have been a forwarded
copy of the same email Bywaters had sent to Rasnake, with the
original attachments plus an electronic commerce agreement
and the Addendum form. Ben Ratliff was out of the office at
the time Rasnake received these emails, but when he returned
to the office a few days later, he received a paper copy of a
lengthy list of terms and conditions from Knox/Consol. Todd
Shumaker was identified in the terms and conditions document,
which referred to him as General Manager, Contract and
Project Management for Knox/Consol.
the attachments to the emails from Bywaters and Fahrenhold
referencing the 2008 Drilling Contract listed a validity
start date of January 22, 2010. Ben Ratliff testified that he
thought Knox/Consol wanted to backdate the reinstated
contract to that date, which made him uncomfortable. He knew
that if he backdated the document to January, he would
already be entitled to a significant amount of standby time.
The same attachment listed an end date of December 31, 9999.
He understood the purpose to be to renew the contract for a
one-year term with automatic renewal each year until
termination notice was given.
Ratliff testified that it was not his usual practice to
consult an attorney about drilling contracts unless he had a
question or was uncomfortable about something. He met with
attorney Randy Bolling regarding the Addendum on June 13,
ultimately “made the decision to use the current date
that [he] signed the contract, ” filled in the blanks
on the form, and executed the Addendum on June 13, 2011, the
same day that he first met with Bolling. Trial Tr., Dec. 13,
2016, at 31, ECF No. 421. He signed the Addendum three days
after he signed the accompanying electronic commerce
agreement, but he could not explain why he had waited to sign
the Addendum. He instructed Rasnake to email the signed
Addendum to Knox/Consol, which she did on June 14, 2011. In
the email, at Ben Ratliff's instruction, Rasnake typed,
“Gasco is standing by and ready to perform work under
this agreement at Consol's call.” Gasco Trial Ex.
12 at 1, ECF No. 397-5. The email did not mention drilling.
Ben Ratliff testified that when he signed the Addendum, he
believed “that I was committing myself to having two
rigs, according to this contract, ready at their call.”
Trial Tr., Dec. 13, 2016, at 34, ECF No. 421.
27, 2011, Fahrenhold sent an email to Rasnake requesting
information about which personnel handled certain types of
matters for Gasco. Two days later, on July 29, 2011,
Fahrenhold sent an email to Rasnake with the subject line
“100679 Gasco Drilling - Daywork Reference Only.”
Gasco Trial Ex. 15 at 1, ECF No. 397-1. The body of the email
read, “Please see the attached copies of the fully
executed addendum and eCommerce forms. Thanks for your
cooperation with this ...