ANALYSIS OF JANUARY 7, 2016 SUPREME COURT OPINION
[Posted January 11, 2016] Last week, while I was on the road, the Supreme Court handed down its first published opinion of the new year. This case illustrates how hard it is to draft an airtight contract.
Virginia Fuel Corp. v. Lambert Coal Co. arises, predictably, in Virginia’s coal country, and involves the purchase of a mining permit and two mine leases. The buyer agreed to pay $200,000 down and another $2.3 million, with the latter figure “payable monthly at the rate of $2.00 per ton of coal mined, with a minimum monthly royalty of $40,000.00.” The buyer gave the seller a security interest in the permit, plus the buyer’s accounts receivable, for that debt. The key language of the security agreement is worth quoting:
For purposes of default in payment of royalty under the Agreement, payments shall be deemed delinquent if not received by [the seller] on or before the 15th of the month following the month in which the mineral is mined for purposes of computing the royalty.
The buyer kept up the payments on this obligation for about three years before shutting them off in March 2013. The seller filed suit for the remaining amount due, just a hair over $1 million. The buyer’s answer claimed, in effect, that the mine had been exhausted. Since no coal had been mined after March 2013, no money was due.
This setup has some interesting nuances. The principal obligation does call for a $40K monthly minimum payment, but the due date for payments is the 15th day of the month after the month in which the coal was mined. If no coal was mined in a given month, then there’s no due date and no default, right?
Well, no. The trial court found that the buyer had to pay at least $40K a month, even if the buyer brought no coal to the surface. The buyer admitted that the $1 million was unpaid, and based on that admission and the language in the contract, the trial court entered summary judgment for the seller. The justices agreed to take a look.
Last Thursday, the Supreme Court affirmed in a unanimous opinion written by Justice Roush. The court turns to caselaw from other jurisdictions to confirm that coal leases can indeed provide for ongoing lease or royalty payments even after the mine is exhausted. If the buyer had wanted to protect itself from the possibility that the mine would run out, it could have insisted upon language like that in the contract documents. (This is the biggest takeaway from this case for lawyers who draft contracts.) Since the buyer didn’t do that, it assumed the risk that the mine wouldn’t prove to be as extensive as the parties evidently thought.
There are a couple other interesting aspects of the case that should serve as cautionary tales for future litigants. Here’s the first one: the buyer originally filed a counterclaim, alleging breach of contract and constructive fraud. The buyer nonsuited the fraud claim after the seller filed a special plea of the statute of limitations. The trial court sustained a demurrer to the contract claim, but gave the buyer leave to amend within 14 days.
The buyer didn’t file anything within that time. Instead, it filed a second counterclaim 5½ months later. The trial court dismissed this pleading without a fuss because the buyer hadn’t obtained leave to file it. The buyer accepted this defeat, declining to even assign error to it.
This is a reminder that in Virginia, if you want to file a pleading out of time, or if you want to amend a previously filed pleading, you must get the judge’s signature on an order granting you leave to do that. If you don’t, then the subsequent document will probably achieve only the status of a legal nullity, which helps no one except your opponent.
The second cautionary tale relates to assignment 1(e), dealing with a denied continuance motion. Here’s the setup: The seller filed a motion for summary judgment once it had the buyer’s admission, described above. On June 20, it noticed that motion for a hearing, with a generous date of September 3, 2½ months later.
On August 26, the week before the hearing date, the buyer propounded initial discovery to the seller. Seven days later – we’re now up to September 2, the day before the hearing – the buyer moved to continue the hearing. Here’s how the court describes the grounds for that motion, telegraphing how this one’s going to come out: “based on both [the seller’s] failure to respond to the discovery requests and the pendency of [the buyer’s] renewed counterclaim, which [the buyer] filed on August 7, 2014, without obtaining prior leave of court.”
Justice Roush really needs to cultivate a better “poker face” for her writing style, because I can clearly read the subtext of this: “Oh, give me a break!” The buyer tried to manufacture a continuance emergency by the expedient of waiting until the bottom of the ninth before propounding discovery. It’s true that the seller hadn’t answered; that’s because the answers weren’t due for another two weeks.
That one’s never going to fly; in what is probably the easiest decision Justice Roush has had to make thus far in her tenure on the court, the Supreme Court affirms the decision to reject the continuance request, as being within the trial court’s discretion.
The only surprise for me is that the Supreme Court included this issue – which appears to be a dead-solid loser – in its grant of a writ. In the past, the court generally would pick and choose carefully when deciding which of multiple issues would get a spot on the argument docket. These days, I’m sensing that there are more cases in which the writ panel decides to just accept the whole case, and decide at the merits stage which issues have legal traction.
If that’s a growing trend, I hope the court will stem it. Loose grants on marginal issues sap time and attention from the meatier questions in a given appeal. After all, the litigants can’t guess which issue will prove to be the appeal’s eventual fulcrum, so they have to treat every issue as potentially case-dispositive, and brief each accordingly. I realize than an appellant will want to have as many possible avenues for reversal as possible, so this sentiment is not likely to sit well on that side of the aisle.