Pittston says it shouldn't have to pay $1M to Kanawha-Gauley

CHARLESTON – The Kanawha-Gauley Coal and Coke Company claims a Virginia coal-mining company owes it more than $1 million after allegedly failing to obey a lease.

Kanawha-Gauley filed a lawsuit in Fayette Circuit Court against Pittston Minerals Group, alleging Pittston has failed to pay obligations it owes to Kanawha-Gauley under the terms of a lease.

But Pittston is fighting back, contending it owes no money to Kanawha-Gauley because of the company's actions.

According to its complaint, Kanawha-Gauley entered into a lease with Kanawha Development Corporation, which is a subsidiary of Pittston. In the lease, Kanawha-Gauley, which owns land in Fayette County, agreed to allow coal property and related surface rights to KDC, the suit states. In turn, KDC made royalty and wheelage payments to Kanawha-Gauley, the complaint says.

"Defendant, Pittston, executed an agreement that is included in the Lease whereby Pittston agreed, among other things, to the following: (a) to be jointly bound with KDC under the lease; (b) to guarantee KDC's performance under the Lease; and (c) to hold Kanawha-Gauley harmless from any expenses or losses due to a default by KDC under the Lease," the suit states.

In November 2003, Appalachian Coal Holdings purchased all of KDC's stock, and the company began to make major defaults on its lease with Kanawha-Gauley that caused Kanawha-Gauley to eventually terminate the lease, Kanawha-Gauley claims.

By April 18, KDC ceased its coal mining operations on Kanawha-Gauley's land, according to the complaint.

However, Kanawha-Gauley says KDC did not pay it royalty or wheelage payments from December 2008 through March. Because Pittston guaranteed the lease, Kanawha-Gauley is now demanding payment from it.

Pittston owes Kanawha-Gauley $1,046,952.35 for royalty and payments on coal production, plus $18,946.21 in interest on unpaid payments, $3,892.31 in interest on late payments, and $8,500 in late payment penalties, the complaint says.

Although Kanawha-Gauley sent both KDC and Pittston letters demanding payment, it says it has received no money from either company.

However, in bankruptcy court, KDC did admit its default to Kanawha-Gauley, according to the complaint.

Pittston admits it has not made any payments to Kanawha-Gauley, but contends it should not be obligated to pay any money.

"Any obligation under the Guaranty Agreement has been discharged by Kanawha-Gauley's impairment of Pittston Minerals' status as guarantor by increasing Pittston Minerals' risk of loss and cost of performance," Pittson's answer states. "Any obligation under the Guaranty Agreement has been discharged by Kanawha-Gauley's breach of its duty of good faith to Pittston Minerals."

In addition, Pittston claims the lease should have been terminated before KDC's bankruptcy hearing. And even though it wasn't, Pittston claims Kanawha-Gauley failed to exhaust all of its possible actions against KDC.

"Kanawha-Gauley failed to pursue available remedies against KDC and its property, including distraint and attachment and enforcement of Kanawha-Gauley's landlord's lien," the company's answer states.

In its two-count suit, Kanawha-Gauley alleges breach of contract and estoppels.

Kanawha-Gauley seeks an unspecified judgment, plus pre- and post-judgment interest, attorneys' fees, costs, a trial and other relief the court deems just.

In its answer, Pittston asks the district court to dismiss Kanawha-Gauley's complaint against it.

Because Pittston is a Virginia company while Kanawha-Gauley is a West Virginia corporation and because Kanawha-Gauley seeks more than $75,000, the case meets the requirements to be filed in U.S. District Court where Pittston removed it.

Paul O. Clay Jr. of Fayetteville will be representing Kanawha-Gauley.

Stephen L. Thompson of Barth and Thompson in Charleston and Wade W. Massie of Penn, Stuart and Eskridge in Abingdon, Va., will be representing Pittston.

U.S. District Court case number: 2:09-1278