LONDON, Ky. — A federal judge in Kentucky handed down on order in a 2012 case against Kentucky Fuel Corporation and James C. Justice Companies in the amount of $35 million.
Federal Judge Gregory F. Van Tatenhove filed the memorandum opinion and order on Sept. 23 in U.S. District Court for the Eastern District of Kentucky overruling the parties' objections and adopting Federal Magistrate Judge Hanly Ingram's recommendations with slight modification.
Van Tatenhove overruled several objections by the defendants and agreed with Ingram on much of his recommendations, except involving a claim regarding collecting both compensatory and punitive damages.
"Whether Plaintiffs were injured because Defendants breached the parties’ contract, or because Defendants’ fraudulently induced acceptance, and never intended to mine the Fivemile coal, the financial injury to Plaintiffs is the same, and Plaintiffs may not recover twice for the same financial loss," Van Tatenhove wrote. "So while the economic loss rule does not preclude Plaintiffs’ fraud in the inducement claim from proceeding alongside its breach of contract claim, the prohibition on double recovery precludes an award of compensatory damages under Count V."
Van Tatenhove wrote that while the plaintiffs couldn't recover double compensatory damages, but they could still recover punitive damages.
Van Tatenhove ordered a total of $35,021,800 in damages—$17,010,900 of which in punitive damages.
In the 2012 case, both parties filed objections to Ingram's report and recommendation.
New London Tobacco Market (NLTM) and Fivemile Energy filed the lawsuit against Kentucky Fuel Corporation and James. C. Justice Cos. Inc. It is related to the 2017 case filed by NLTM and Fivemile against Justice alleging violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act.
"Magistrate Judge Ingram has once again recommended that this Court award an amount that could exceed $60 million in default damages, and once again there is nothing in the record to suggest that Plaintiffs have suffered any damage as a result of the breaches alleged in Plaintiffs’ Amended Complaint," the July 10 objection states.
The defendants' argued in the objection that it would appear that the three-day evidentiary hearing did nothing to change the magistrate judge's opinion of the defendants or of the validity of their arguments that led to the court's March 31, 2017, memorandum opinion and order that set aside the Jan. 17, 2017, report and ordered the evidentiary hearing.
"When fully and carefully considered, the Report does not represent appropriate compensatory damages," the objection states. "Instead, it is again an award solely punitive in nature, intended to punish Defendants rather than to compensate Plaintiffs for any damage they may have actually suffered."
Magistrate Judge Hanly Ingram’s opinion of the defendants is evident throughout the report, as is his clear belief that the defendants have continually disrespected the court, despite the compelling testimony of Jay Justice apologizing to the court and assuring the court of the respect that he and the defendant companies hold for the court, according to the objection.
"The Report rests on the Magistrate Judge’s conclusion that determining the amount of coal that Defendants would have mined under the subject lease had they used 'commercial and reasonable good faith and best efforts to maximize, within the constraints of industry standards, the amount of coal extracted...' did not require him to account for the mineability or the merchantability of that coal," the objection states.
In its own objection, NLTM wrote that Ingram’s report and recommendation is a careful, well-thought-out analysis of the evidence on damages.
"For that reason, Plaintiffs are reluctant to object to any of its conclusions and recommendations," NLTM wrote. "However, in several instances, the Report offers alternatives without recommending them. The thoroughness of the Report, however, is evidenced by the fact that even where it does not recommend these alternative measures of damages, it carefully lays out the options for this Court in case this Court adopts the alternative measures."
Those objections primarily address the alternative remedies foreshadowed by the report, according to NLTM's objection.
It notes that the most significant of these is the report’s failure to recommend the alternative measure of fraud damages.
On June 26, Ingram authored a report and recommendation and order in the case. Ingram recommended $59,658,452 in damages, as well as attorneys' fees.
The 2017 RICO suit against the defendants argues that the defendants executed a guaranty agreement with the NLTM and Kentucky Fuel Corp., according to the suit. It also provided an audited consolidated financial statement for it and its subsidiaries that showed more than $175 million in assets, stockholders' equity greater than $48 million, and a net income for one year of $47 million.
"The defendants intended for the plaintiffs to rely upon this disclosure to induce plaintiffs to do business with them and to conclude that any debt owed by the defendants to the plaintiffs could be paid," the amended complaint states.
U.S. District Court for the Eastern District of Kentucky case number 6:12-cv-00091
