UNITED STATES BANKRUPTCY COURT 

EASTERN DISTRICT OF VIRGINIA 

RICHMOND DIVISION 

MEMORANDUM OPINION 

Preliminary Statement 

In October 2015, plaintiff Black Diamond Commercial Finance, LLC, 

(“Black Diamond”) brought this action for breach of contract against 

defendants Virginia Conservation Legacy Fund, Inc., (“VCLF”) and its 

In re: 

Patriot Coal Corp., et al., 

 Debtors. 

 

Case No. 15-32450-KLP 

Chapter 11 

Jointly Administered 

 

Black Diamond Commercial Finance, LLC, 

 Plaintiff, 

 v. 

Virginia Conservation Legacy Fund, Inc., and 

ERP Compliant Fuels, Inc., 

 Defendants. 

 

Adv. Proc. No. 16-03105-KLP

Virginia Conservation Legacy Fund, Inc., and 

ERP Compliant Fuels, Inc., 

 Counter-Claimants, 

 v. 

Black Diamond Commercial Finance, LLC, 

 Counter-Defendant. 

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affiliate, ERP Compliant Fuels, LLC, (“ERP”) (collectively, also “VCLF” or 

“Defendants”), in New York state court.1 Black Diamond alleges that the 

Defendants breached the parties’ contract in which Black Diamond agreed to 

provide VCLF with exclusive financing to be used for working capital and 

specified fees in connection with VCLF’s purchase of certain assets from 

Patriot Coal Corporation and its affiliated corporations (collectively, 

“Patriot”), then debtors-in-possession in consolidated chapter 11 cases filed in 

this Court (In re Patriot Coal Corp., Case No. 15-32450-KLP, the “Patriot 

Cases”).2 The Defendants filed a counterclaim, alleging that it was Black 

1 On November 12, 2015, the Defendants filed a Notice of Removal in the District 

Court for the Southern District of New York and requested that the action be 

transferred to this Court. The District Court referred the case to the Bankruptcy 

Court for the Southern District of New York. On April 25, 2016, the Bankruptcy 

Court for the Southern District of New York transferred the case to this Court. 

2 Related debtors whose cases were jointly administered with that of Patriot Coal 

Corporation, Inc. include 15-32455-KLP, Apogee Coal Company, LLC; 15-32460-

KLP, Appalachia Mine Services, LLC; 15-32469-KLP, Black Stallion Coal Company, 

LLC; 15-32471-KLP, Brody Mining, LLC; 15-32474-KLP, Catenary Coal Company, 

LLC; 15-32476-KLP, Central States Coal Reserves of KY, LLC; 15-32479-KLP, 

Colony Bay Coal Company; 15-32480-KLP, Corydon Resources LLC; 15-32487-KLP, 

Coyote Coal Company LLC; 15-32482-KLP, Dodge Hill Mining Company, LLC; 15-

32484-KLP, Eastern Associated Coal, LLC; 15-32489-KLP, Eastern Royalty, LLC; 

15-32448-KLP, Emerald Processing, L.L.C.; 15-32493-KLP, Gateway Eagle Coal 

Company, LLC; 15-32497-KLP, Grand Eagle Mining, LLC; 15-32499-KLP, Heritage 

Coal Company LLC; 15-32452-KLP, Highland Mining Company, LLC; 15-23457-

KLP, Hillside Mining Company; 15-32461-KLP, Hobet Mining, LLC; 15-32464-KLP, 

Jupiter Holdings LLC; 15-32449-KLP, Kanawha Eagle Coal, LLC; 15-32468-KLP, 

Kanawha River Ventures III, LLC; 15-32470-KLP, Little Creek LLC; 15-32473-KLP, 

Midland Trail Energy LLC; 15-32475-KLP, Midwest Coal Resources II, LLC; 15-

32478-KLP, Mountain View Coal Company, LLC; 15-32481-KLP, Panther LLC; 15-

32483-KLP, Patriot Coal Company, L.P.; 15-32485-KLP, Patriot Coal Holdings I 

LLC; 15-32486-KLP, Patriot Coal Holdings II LLC; 15-32490-KLP, Patriot Coal 

Sales LLC; 15-32492-KLP, Patriot Coal Services LLC; 15-32495-KLP, Patriot 

Leasing Company LLC; 15-32498-KLP, Patriot Midwest Holdings, LLC; 15-32500-

KLP, Patriot Reserve Holdings, LLC; 15-32451-KLP, Patriot Ventures LLC; 15-

32453-KLP, Pine Ridge Coal Company, LLC; 15-32454-KLP, Remington LLC; 15-

32456-KLP, Rhino Eastern JV Holding Company LLC; 15-32458-KLP, Rivers Edge 

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Diamond that breached the contract, excusing the Defendants’ performance 

thereunder and entitling them to damages. 

This Court assumed control over this breach of contract action 

pursuant to an April 25, 2016, order transferring venue from the Bankruptcy 

Court for the Southern District of New York.3 The transfer order, when 

received by this Court, was accompanied by 139 documents containing 6,716 

pages. The record has increased exponentially since that time. 

Although the contract underlying the dispute is relatively 

uncomplicated and the operative facts generally straightforward, the parties 

have left no stone unturned while disagreeing over nearly every facet of the 

case. The litigation has been wrought with numerous protracted disputes 

over the proper forum, scheduling, discovery, and other pretrial matters,4

adding to the abundance of pleadings and exhibits filed in the case and 

eventually culminating with an eight-day trial that took place from June 4 

through June 13, 2018.5

Mining, Inc.; 15-32459-KLP, Robin Land Company, LLC;15-32462-KLP, Speed 

Mining LLC; 15-32463-KLP, Thunderhill Coal LLC; 15-32465-KLP, Wildcat Energy 

LLC; 15-32466-KLP, Wildcat, LLC; 15-32467-KLP, Will Scarlet Properties LLC; and 

15-32472-KLP, WWMV JV Holding Company LLC. 

3 On May 10, 2016, Black Diamond filed a motion to remand or for discretionary 

abstention, which the parties briefed and argued. The motion was denied by the 

Court in a Memorandum Opinion and Order entered on September 23, 2016. In re 

Patriot Coal Corp. (Black Diamond Comm. Fin., LLC v. Va. Conservation Legacy 

Fund, Inc.), Adv. Pro. No. 16-03105-KLP, 2016 WL 5360950 (Bankr. E.D. Va. Sept. 

23, 2016). 

4 On February 15, 2018, the Court denied cross motions for partial summary 

judgment (Dkt. 246). 

5 A significant amount of trial time involved evidence concerning damages. 

Bifurcation of the liability and damages portions would likely have substantially 

reduced the length of the trial; however, when the Court made such a suggestion 

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After completing the trial and parsing the transcript, the parties 

submitted proposed findings of fact and conclusions of law. Predictably, each 

party continues to assert that it acted appropriately while the other 

committed a breach entitling it to many millions of dollars in damages. 

Having heard the arguments of the parties and having considered the 

evidence, the Court concludes that neither party violated the terms of the 

contract at issue and neither party is entitled to damages. Accordingly, the 

Court will dismiss both Black Diamond’s complaint and VCLF’s 

counterclaim. This Memorandum Opinion setting forth the Court’s findings 

of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of 

Civil Procedure6 provides the explanation for the Court’s ruling. 

JURISDICTION 

This Court has subject matter jurisdiction over this adversary 

proceeding pursuant to 28 U.S.C. § 1334(b) and 28 U.S.C. § 157(a). See also 

Black Diamond Commercial Fin., LLC v. Va. Conservation Legacy Fund, Inc. 

(In re Patriot Coal Corp.), Adv. Pro. No. 16-03105-KLP, 2016 WL 5360950, at 

*2 n.4 (Bankr. E.D. Va. Sept. 23, 2016) (the “Remand Opinion”). The Court 

provided all parties with the opportunity, no later than November 14, 2016, 

to dispute the Court’s ability to enter final orders and ordered that the failure 

to act would be “deemed to constitute consent to the entry of final orders by” 

during the final pretrial conference, both parties argued against it and the Court 

acquiesced. 

6 Made applicable pursuant to Rule 7052 of the Federal Rules of Bankruptcy 

Procedure. 

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this Court in this adversary proceeding. (Dkt. 44, ¶ 12) No party acted by 

the November 14 deadline. Therefore, the Court may enter a final order in 

this case, subject to review under 28 U.S.C § 158.7 See Wellness Int’l Network, 

Ltd. v. Sharif, 135 S. Ct. 1932, 1944-45 (2015). 

FINDINGS OF FACT 

Joint Stipulation of Uncontroverted Facts 

No doubt after extensive negotiations and the exchange of numerous 

drafts, the parties have managed to agree to one page of stipulated facts (the 

“Uncontroverted Facts”).8 The parties agree that the following is 

uncontroverted:

1. Black Diamond is a Delaware limited liability company that 

does business in Greenwich, Connecticut, and Lake Forest, Illinois. 

2. VCLF is a Virginia nonstock corporation. 

3. ERP is a Virginia limited liability company created for the 

purpose of consummating VCLF’s acquisition of certain assets and 

assumption of certain liabilities from debtor Patriot Coal Corporation and 

affiliated debtors in the Patriot Cases. 

7 Should it be determined that the Court lacks the authority to enter a final order, 

then this Memorandum Opinion shall be deemed its proposed findings of fact and 

conclusions of law to the district court. 

8 Dkt. 271, 291. To be fair, the parties agreed after the trial to withdraw deposition 

designations to which objections had been interposed and enter into evidence 

unopposed deposition designations and counter-designations. See Dkt. 396. 

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4. On May 12, 2015, Patriot filed voluntary Chapter 11 petitions in 

the U.S. Bankruptcy Court for the Eastern District of Virginia, commencing 

the Patriot Cases. 

5. On August 16, 2015, VCLF/ERP, Patriot, and certain Patriot 

subsidiaries executed an asset purchase agreement, pursuant to which 

VCLF/ERP would acquire certain assets from Patriot, including the Federal 2 

Mine in West Virginia, and assume certain employee and environmental 

liabilities of Patriot. 

6. On September 21, 2015, Black Diamond executed a commitment 

letter with VCLF/ERP (the “Commitment Letter”). (The Parties stipulated 

that a true and correct copy of the Commitment Letter was attached to the 

stipulations as Exhibit A.) 

7. Stephen Deckoff, representing Black Diamond, and Thomas 

Clarke, representing VCLF/ERP, executed the Commitment Letter on 

September 21, 2015. 

8. Black Diamond commenced a lawsuit against Defendants in the 

Supreme Court of the State of New York, County of New York, on October 26, 

2015 (the “Lawsuit”). Black Diamond commenced the Lawsuit by a summary 

procedure that did not require the preparation of a complaint, but rather only 

a summons with notice. Black Diamond subsequently filed a complaint. 

9. The Lawsuit was subsequently removed to the U.S. Bankruptcy 

Court for the Southern District of New York on November 12, 2015, and 

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transferred to the United States Bankruptcy Court for the Eastern District of 

Virginia on April 25, 2016. 

10. VCLF/ERP closed a transaction with Patriot by which it 

acquired certain assets and assumed certain liabilities from Patriot on 

October 27, 2015. 

The Court’s Additional Findings of Fact 

Having adopted the Uncontroverted Facts and considered the evidence 

presented at trial, the Court makes the following findings of fact. Unless 

otherwise indicated, citations reference the trial transcripts by date, page, 

and line. Trial exhibits are identified by number. Docket entries refer to the 

docket of the adversary proceeding unless designated as having been 

docketed in the Patriot Cases. 

The Patriot Cases were filed in this Court on May 12, 2015 

(Uncontroverted Facts, ¶ 4). Patriot’s proposed reorganization plan included 

selling its profitable working non-union mines and associated equipment, 

considered its “core” assets, to Blackhawk Mining, LLC, (“Blackhawk”) and 

abandoning its “noncore assets” including non-working mines, unionized 

mines and nearly all of its environmental and workers’ compensation 

liabilities. (Patriot Cases, Dkt. 200, ¶ 5) 

Soon after the case was commenced, VCLF expressed an interest in 

acquiring Patriot’s noncore assets, i.e., those that Blackhawk did not intend 

to purchase, including the Federal 2 Mine (a longwall thermal coal mine in 

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Morgantown, West Virginia), and assuming over $400 million in 

environmental and employee-related Patriot liabilities. (Tr. 6/11, 279:17-24, 

281:15-282:2). VCLF, a Virginia nonstock corporation, (Uncontroverted Facts 

¶ 2) is a 501(c)(3) charitable organization that is registered as a land trust in 

the Commonwealth of Virginia. (Tr. 6/11, 276:22-25) Its purpose is to protect 

and conserve land. (Tr. 6/11, 276:25) VCLF had prior experience in 

supporting mining and energy companies with their environmental 

management and compliance. (Tr. 6/11, 277:4-14) 

VCLF’s proposal to purchase Patriot’s noncore assets and assume 

environmental and employee-related Patriot liabilities was supported by the 

Environmental Protection Agency, the Department of Justice, the 

Department of the Interior and the United Mine Workers of America 

(“UMWA”). (Tr. 6/11, 282:13-283:5) As part of its planned acquisition, VCLF 

agreed that any recovery it might receive on its equity in these assets would 

be utilized toward environmental remediation. (Tr. 6/11, 287:19-288:9) 

Thomas Clarke (“Clarke”) is the chief executive officer of VCLF and is 

responsible for its day-to-day governance activities. He directs a 

management team that oversees land conservation and environmental 

management. (Tr. 6/11, 278:8-9, 10-15) In order to pursue VCLF’s proposed 

transaction with Patriot, Clarke retained Pillsbury Winthrop Shaw Pittman, 

LLP, (“Pillsbury”) as VCLF’s legal counsel in May or June 2015 and Teneo 

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Restructuring (“Teneo”) as its investment banker a few weeks thereafter. (Tr. 

6/11, 283:9-12, 283:23-284:9) 

In July, 2015, Teneo introduced Clarke to Kenneth McCoy (“K. 

McCoy”) and Jason McCoy (“J. McCoy”), who had extensive experience in the 

coal industry and would add credibility to VCLF’s proposal. (Tr. 6/11, 284:10-

285:17; Tr. 6/8, 149:10-150:7; Tr. 6/13, 64:19-66:11) On August 5, 2015, 

Clarke, K. McCoy and J. McCoy met and agreed to become partners to 

acquire and manage the Federal 2 Mine through ERP. (Tr. 6/8, 152:9-25) 

ERP is jointly owned by VCLF and Iron Management, LLC (“Iron 

Management”). (Ex. 249) K. McCoy is the chief executive officer of ERP and 

is a member of Iron Management as well. (Tr. 6/13, 67:10-11; Ex. 249 at 

VCLF-00000006) J. McCoy is a senior vice-president of ERP and is also a 

member of Iron Management. (Tr. 6/8, 149:1-3; Ex. 249 at VCLF-00000006) 

Clarke is a managing member of ERP. (Ex. 249 at VCLF-00000006) 

VCLF’s purchase offer was accepted on August 16, 2015, when VCLF 

and ERP entered into an asset purchase agreement whereby Patriot would 

buy certain of Patriot’s assets and liabilities, including coal mines and 

equipment, workers’ compensation assets and liabilities, and minereclamation assets and liabilities (the “August 16 APA”). (Ex. 15; see also

Uncontroverted Facts, ¶ 5; Tr. 6/4, 63:20-64:7; Tr. 6/11, 286:17-287:18, 

289:10-14) The August 16 APA provided that any of its provisions could be 

amended or waived to the extent that “such amendment or waiver is in 

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writing and is signed.” (Ex. 15 § 12.03(a)) The August 16 APA also provided 

that “this Agreement and the sale of the Purchased Assets are subject to 

Bankruptcy Court approval.” (Ex. 15 § 7.07) The parties were required to 

close on or before January 31, 2016. (Ex. 15 § 11.01 (b)) 

Under the August 16 APA, VCLF was to purchase the assets and 

liabilities associated with the Federal Mine No. 2 and assume “all Workers’ 

Compensation Liabilities of Sellers or any of their respective Affiliates or any 

of their respective predecessors, whenever arising.” (Ex. 15 §§ 2.01 & 2.03(f)) 

The August 16 APA provided that VCLF would acquire Patriot’s workers’ 

compensation liabilities along with rights to the collateral securing those 

obligations that had originally been posted in the form of letters of credit 

(together with the liabilities, the “W/C Package”). (Ex. 15 §§ 2.01(q), 2.03(f), 

2.04(f); Sched. 1.01(a)(vii)) Patriot warranted that the value of the workers’ 

compensation collateral was $168,995,445 and that the value of the workers’ 

compensation liabilities was $108,478,658. (Ex. 15 §§ 3.18, 19; Sched. 

1.01(a)(vii)) One of the workers’ compensation letters of credit included in 

the W/C Package under the August 16 APA was a letter of credit issued by 

Bank of America for the benefit of Old Republic Insurance Company (“Old 

Republic”), in the face amount of $14,805,712 (the “Old Republic L/C”). (Ex. 

15, Sched. 1.01(a)(vii)) Pursuant to the August 16 APA, VCLF was to receive 

approximately $8 million in cash proceeds from Old Republic’s settlement 

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with Patriot over workers’ compensation related liabilities that had been 

secured by the Old Republic L/C. (Tr. 6/11, 322:9-20). 

The sale of the assets and liabilities described in the August 16 APA 

was “subject to higher and better bids, including a potential auction.” (Ex. 

15, § 5.07(c)) On June 25, 2015, the Court entered a bidding procedures order 

(the “Bidding Procedures Order”) in the Patriot Cases, setting forth 

procedures for parties to bid on the core and noncore Patriot assets. (Ex. 333) 

Blackhawk was chosen to be the “stalking horse” purchaser for the core 

Patriot assets. VCLF was named the “Federal Stalking Horse Bidder,” the 

initial proposed purchaser for the noncore assets, with special stalking horse 

protections that included a breakup fee in the event it was outbid. (Ex. FQ) 

The Bidding Procedures Order specified that the auctions would occur only 

“[i]f one or more Qualified Bids (in addition to the Blackhawk Bid and 

Federal Stalking Horse Bid, if any) are received by the Bid Deadline in 

connection with either the Blackhawk Sale or the Federal Sale.” (Ex. 333 at 

32) 

An auction was held on September 21, 2015, in the Patriot Cases at the 

offices of its counsel. VCLF attended the auction but did not bid on the core 

assets. There were no other qualified bidders for the noncore assets being 

purchased by VCLF. (Tr. 6/11, 307:25-308:13; 308:14-16) Accordingly, VCLF 

remained the purchaser of Patriot’s noncore assets. 

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The August 16 APA was terminable to the extent that VCLF did not 

“demonstrate[] the financial wherewithal to own and operate the Purchased 

Assets and perform the Assumed Liabilities, as demonstrated by one or more 

written, binding commitments for equity and debt financing, on or prior to 

October 9, 2015.” (Ex. 15, § 11.01(m)) Patriot’s obligation to close the 

transaction was also contingent on VCLF’s “obtain[ing] sufficient financing 

and/or credit support . . . to consummate the transactions contemplated [by 

the August 16 APA].” (Ex 15, § 10.03(g)) Accordingly, between July and 

September 2015, VCLF, through its financial advisor Teneo, tried to obtain 

third-party financing to enable it to consummate the VCLF-Patriot 

transaction and provide working capital for the Federal 2 Mine after closing. 

(Tr. 6/11, 109:15-17) 

Black Diamond was the only investor to come forward and offer a term 

sheet to provide financing for VCLF to close on its transaction with Patriot. 

(Tr. 6/11, 115:19-24) Black Diamond, which originates and administers 

loans, (Tr. 6/4, 57:17-23), is an affiliate of Black Diamond Capital 

Management, an asset management firm that manages different types of 

financial vehicles, including a hedge fund and a distressed private equity 

fund. (Tr. 6/4, 57:19-20, 56:15-22) 

Prior to the commencement of the Patriot Cases, Black Diamond had 

been part of a syndicate of lenders to Patriot, through a “Letter of Credit 

Facility.” (Tr. 6/4, 59:18-19; Tr. 6/8, 15:2-10) In this capacity, Black Diamond 

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had undertaken extensive diligence and obtained confidential information 

regarding the Patriot assets, including the Federal 2 Mine. (Ehrlich Dep. 

Tr.9 46:22-47:10, 48:13-49:7, 49:10-50:3, 50:13-51:10, 51:18-52:4) Black 

Diamond’s membership in the Letter of Credit Facility also afforded it 

knowledge regarding the W/C Package. 

On Sunday, September 13, 2015, a meeting was held in Teneo’s offices 

to discuss a possible financing deal between and among VCLF, ERP, and 

Black Diamond. (Ex. 314; Ex. 315; Tr. 6/4, 74:7-9; 74:19-22; Tr. 6/11, 124:24-

125:4) During the course of the meeting, the parties engaged in substantive 

discussions about VCLF and ERP’s business plan, including their plan for 

developing the Federal Mine. (Tr. 6/8, 10:4-14; Tr. 6/11, 125:21-25) The 

parties also discussed the nature of Black Diamond’s business. (Tr. 6/8, 10:4-

8) Black Diamond had experience with mining and mining assets but was 

particularly interested in the W/C Package. (Tr. 6/4, 64:8-12) Black 

Diamond had determined that there was value in the W/C Package and 

wanted to obtain an ownership interest in it. (Tr. 6/8, 14:13-16) 

Black Diamond’s attorney, Adam Harris (“Harris”), was instructed by 

Black Diamond to draft a commitment letter on Sunday, September 20, 2015. 

(Tr. 6/5, 138:12-22) Harris drafted a commitment letter (Tr. 6/5, 37:25-38:1) 

and, later on September 20, 2015, it was e-mailed to Clarke. This was the 

9 The citation convention “[name] Dep. Tr.,” as used herein, refers to the designated 

deposition testimony admitted into evidence in this adversary proceeding by 

agreement of the Parties. See Stip. Entering into Evid. Unopposed Dep. 

Designations & Counter-Designations, Dkt. 396. 

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only pre-execution draft of the Commitment Letter. There were no 

negotiations with Clarke, Pillsbury or anyone else on the VCLF team 

regarding the terms of the Commitment Letter, other than brief, in-person 

conversations the following morning. (Tr. 6/5, 228:2-12; Tr. 6/11, 267:8-15) 

There were no significant changes made to the Commitment Letter between 

the September 20, 2015, e-mailed draft and the final executed version. 

(Compare Ex. N (draft commitment letter) with Ex. 40 (final Commitment 

Letter)) 

Black Diamond, VCLF, and ERP executed the Commitment Letter on 

September 21, 2015. (Ex. 40 at BDCF-00028161) The Commitment Letter is 

a five-page letter agreement and includes its own Exhibit A summarizing 

“principal terms and conditions.” Deckoff signed the Commitment Letter on 

behalf of Black Diamond, and Clarke signed on behalf of VCLF and ERP. 

(Ex. 40 at BDCF-00028161) By signing the Commitment Letter, Black 

Diamond agreed “to provide VCLF with asset-based loans and/or term loans 

in the aggregate principal amount of $25,000,000.00,” subject to the 

conditions set forth in the Commitment Letter. (Ex. 40 at BDCF-00028157) 

The Commitment Letter is the contract upon which this action is 

based. The purpose of the Commitment was “(a) paying certain fees, costs 

and expenses in connection with the consummation of the transactions 

contemplated by the VCLF APA, and (b) providing VCLF with working 

capital from and after the consummation of such transactions.” (Ex. 40 at 

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BDCF-00028157) Pursuant to the Commitment Letter, in exchange for the 

loan, Black Diamond was to receive loan payments, including interest, and 

equity interests (the “Equity Interests”) in companies to be formed by VCLF 

and ERP for the purpose of acquiring and holding the Federal Mine and W/C 

Package. (Ex. 40 at BDCF-00028163-64 & BDCF-00028166) It was 

understood by the parties that Black Diamond would fund $10 million of the 

term loan at closing. (Tr. 6/11, 343:20-21; Tr. 6/12, 24:2-5; Tr. 6/5, 83:13-19; 

135:3-5) It was also understood that despite the inclusion of certain nonsolicitation provisions in the Commitment Letter, VCLF would potentially 

use other sources of funding for items such as pre-closing expenses. (Tr. 6/5, 

146:24-147:2) 

Black Diamond’s financing commitment related solely to the 

transaction set forth in the “VCLF APA,” which was defined as the August 16 

APA “as amended, modified or supplemented prior to the date hereof 

[September 21, 2015].” (Ex. 40 at BDCF-00028157) If VCLF and Patriot 

materially modified the August 16 APA after September 21, 2015, Black 

Diamond would not be required to fund the transaction set forth in that 

modified agreement because Black Diamond’s performance under the 

Commitment Letter was expressly conditioned on the consummation of the 

transaction described in the August 16 APA, as amended before September 

21. (Ex. 40 at BDCF-00028158) The Commitment Letter stated that “[t]he 

Commitment and other undertakings hereunder are subject to . . . the entry 

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of a final, non-appealable order of the United States Bankruptcy Court for 

the Eastern District of Virginia, Richmond Division, authorizing and 

approving the VCLF APA.”10 (Ex. 40 at BDCF-00028158) The Commitment 

Letter was further conditioned on “the approval and consummation of a 

transaction for the Excluded Assets (as defined in the VCLF APA) in form 

and substance acceptable to Lender.” (Ex. 40 at BDCF-00028164) The 

Commitment Letter contained other conditions, including: (a) “the 

simultaneous consummation of the transactions contemplated by the VCLF 

APA”; (b) “the absence of any event or circumstance that has had or is 

reasonably likely to have a material adverse effect on VCLF”; and (c) the 

“completion of Lender’s business and legal due diligence.” (Ex. 40 at BDCF00028158, 164) 

The Commitment Letter specified that the “consideration” for Black 

Diamond’s execution and delivery of the Commitment Letter was a portion of 

a “break-up fee” that VCLF would be paid by Patriot if Patriot did not sell the 

noncore assets to VCLF:11

10 As defined in the Commitment Letter. 

11 See Ex. 15 § 11.02(b) (if “this Agreement is terminated,” and Patriot consummates 

an “Alternative Transaction,” then Patriot shall pay to VCLF the “Break-Up Fee by 

wire transfer of immediately available funds concurrently with the consummation of 

such Alternative Transaction”); id. § 1.01(a) (defining “Alternative Transaction” as 

“(i) the filing of a plan of reorganization contemplating the sale or retention of all or 

any material portion of the Purchased Assets that is inconsistent with the terms of 

this Agreement or (ii) a sale, lease or other disposition directly or indirectly by 

merger, consolidation, tender offer, share exchange or otherwise to one or more third 

parties of all or any material portion of the Purchased Assets (whether in one or a 

series of transactions)”). 

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VCLF has advised that pursuant to an order of the 

United States Bankruptcy Court for the Eastern 

District of Virginia, Richmond Division, VCLF is 

entitled to payment of a “break up fee” and expense 

reimbursement from Patriot Coal Corporation 

under certain circumstances. By its execution of 

this Commitment letter, VCLF agrees that in the 

event it is entitled to receive payment of the break 

up fee, it will remit fifty percent (50%) of the 

amounts so received to Black Diamond. In 

addition, in the event VCLF is entitled to receive 

payment of any expense reimbursement, it will 

remit to Black Diamond its ratable share of the 

amount so received. The payments to Black 

Diamond hereunder shall be consideration for 

Black Diamond’s execution and delivery of this 

Commitment. 

(Ex. 40 at BDCF-00028158-59) Nowhere else in the Commitment Letter is 

there a reference to any consideration that would be owed by VCLF in 

exchange for Black Diamond’s delivery of the Commitment Letter, nor is 

there any other document or communication memorializing or evidencing an 

agreement by VCLF to pay any additional consideration to Black Diamond in 

exchange for delivery of the Commitment Letter. 

Exhibit A attached to and made a part of the Commitment Letter 

provides that upon the “Closing Date,” (defined as the date of the “initial 

funding” of the Senior Secured Facilities (Ex. 40 at BDCF-00028162)) and as 

part of the consummation of the financing transaction contemplated by the 

Commitment Letter, VCLF would convey the Equity Interests to Black 

Diamond. 

Equity Interests: On the Closing Date, Borrowers 

shall create a new intermediate holding company to 

acquire a 75% interest in ERP Federal Mining 

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Complex, LLC (the entity that owns (or will own) 

the assets and liabilities associated with the 

Federal Mine Complex; (“Federal Intermediate 

HoldCo”). Black Diamond shall receive equity in 

Federal Intermediate HoldCo representing a 40% 

interest on a fully diluted basis. 

In addition, on the Closing Date Borrowers12 shall 

create a new entity to acquire the assets and 

liabilities associated with the workers’ 

compensation programs currently administered by 

Patriot Coal Corporation and its affiliates 

(“HealthCo”). Black Diamond shall receive equity 

in HealthCo representing a 90% interest on a fully 

diluted basis. 

Ex. 40 at BDCF-00028166. 

The Commitment Letter also included the following non-solicitation 

and exclusivity provisions (the “Non-Solicitation Provisions”) intended to 

prevent VCLF from seeking alternative acquisition financing or excluding 

Black Diamond in connection with the August 16 APA: 

VCLF hereby acknowledges and agrees that upon 

acceptance of this Commitment it shall not solicit 

or accept an offer by any person other than Black 

Diamond of any debt or equity financing for the 

purpose of facilitating in any manner the 

consummation of the transactions contemplated by 

the VCLF APA. In addition, VCLF acknowledges 

and agrees that it shall not submit or pursue any 

offer for all or any material portion of the 

Purchased Assets (as defined in the VCLF APA) in 

conjunction with any other person or entity other 

than Black Diamond and its affiliates, or that does 

not provide for the receipt by Black Diamond of the 

Equity Interests contemplated by the Term Sheet. 

Ex. 40, at BDCF-00028159). 

12 Defined therein as VCLF. 

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After consummation of the anticipated transaction, VCLF would be 

entitled to pay off Black Diamond’s loan at any time before its three-year 

maturity, without premium or penalty. The Commitment Letter provided: 

Optional Prepayments: The Borrower may 

voluntarily prepay Term Loans (together with 

accrued but unpaid interest thereon) under the 

Term Loan Facility in whole or in part at any time 

and from time to time (subject to minimum 

thresholds as set forth in the Loan Facility 

Documentation) without premium or penalty. Any 

amounts prepaid under the Term Loan Facility 

may not be reborrowed. 

Ex. 40 at BDCF-00028164. 

The Commitment Letter explicitly required any modifications or 

amendments to be in writing in order to be effective, specifying that it “may 

not be amended or any provision hereof waived or modified except by an 

instrument in writing signed by the party against whom enforcement of the 

same is sought.” (Ex. 40 at BDCF-00028160) This requirement was 

understood, acknowledged, and honored by the parties during the course of 

their dealings. On the only occasion upon which the parties agreed to a 

modification, on October 7, 2015, they amended the Commitment Letter in a 

signed writing to extend its termination date from October 8 until November 

9, 2015. (Ex. 53; Ex. AG; Tr. 6/4, 88:14-89:5; Tr. 6/5, 192:7-193:4; Tr. 6/11, 

340:24-341:4; Tr. 6/12, 90:21-91:4)13 Other than the extension of the 

termination date, the Commitment Letter was never modified and no 

13 The parties effected this modification by email. (Tr. 6/4, 88:14-19; Tr. 6/11, 

340:24-341:4; Tr. 6/12, 90:21-91:4; Ex. 53) 

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provision of the Commitment Letter was ever waived. (Tr. 6/5, 210:2-8; Tr. 

6/11, 341:5-11; see also Answer & Counterclaim, Dkt. 3, p. 30, ¶ 48. 

On September 21, 2015, the same day that VCLF and Black Diamond 

executed the Commitment Letter, Patriot filed a motion seeking approval of a 

settlement agreement between Patriot and Old Republic, which had issued 

the Old Republic L/C to secure certain of Patriot’s workers’ compensation 

liabilities. (Ex. 41) Pursuant to the agreement, Old Republic agreed to cover 

these workers’ compensation liabilities and return $8,060,310.80 in surplus 

collateral to Patriot. (Ex 41, ¶ 10) The Bankruptcy Court entered an order 

approving the settlement agreement on October 13, 2015. (Ex. 65) Under 

the terms of the August 16 APA, VCLF was entitled to this surplus collateral. 

(Ex. 15, § 2.01(q), Sched. 1.01(a)(vii)); Tr. 6/11, 322:15-20) The confirmation 

order entered by the Court in the Patriot Cases (the “Confirmation Order”), 

however, conveyed these funds to Patriot, thus divesting VCLF of over $8 

million in proceeds at closing. (Ex. 334 at 62 ¶ 159) The Confirmation Order, 

in effect, substantially modified the August 16 APA. 

The diversion of the Old Republic proceeds from VCLF to Patriot was 

presented to VCLF by Patriot as a measure necessary to obtain confirmation 

of Patriot’s Plan, due to Patriot’s continuously deteriorating cash position. 

VCLF agreed to relinquish the proceeds in order to confirm the Plan. (Tr. 

6/11, 322:13-323:16). VCLF understood that without this modification, it 

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would not be able to accomplish the transaction with Patriot. (Tr. 6/7, 

216:12-25) 

Additional changes to the August 16 APA took place after the 

Commitment Letter was signed. Under the August 16 APA, Patriot agreed to 

provide VCLF and ERP with ten days’ worth of coal inventory. (Ex. 15, 

§ 5.01(iv); Tr. 6/4, 179:25-180:16) Patriot subsequently informed VCLF that 

it would not provide ten days’ worth of inventory but, instead, would deliver 

substantially less coal inventory at closing. (Ex. 360; Tr. 6/4, 183:8-185:10) 

This change would significantly reduce VCLF’s liquidity. (Tr. 6/4, 182:4-9) 

It was also discovered that VCLF would be responsible for a longwall 

move that was originally scheduled to be completed by Patriot in September 

2015. (Tr. 6/4, 187:8-20; Tr. 6/8, 28:9-29:4) Patriot had slowed production at 

the Federal Mine so that the longwall move would not be completed until 

after Patriot and VCLF’s planned closing date. (Ex. 56; Ex. 59; Tr. 6/4, 187:8-

20; Tr. 6/8, 113:1-24; Tr. 6/13, 132:21-23) The effect of this delay was to shift 

responsibility for, and the substantial expense associated with, the longwall 

move from Patriot to VCLF, which would further reduce VCLF’s profitability. 

(Tr. 6/4, 187:16-20; Tr. 6/8, 28:11-29:4) 

The parties also learned that VCLF’s mining plan interfered with 

property owned by the Bula Baptist Church, which sat atop the Federal 

Mine. (Tr. 6/4, 189:1-18; Tr. 6/8, 29:5-9) Patriot did not have a contract with 

Bula Baptist Church, meaning that VCLF would need to purchase or pay for 

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the relocation of the church in order to effectively mine the coal, an additional 

expense not anticipated when the August 16 APA was executed. (Tr. 6/4, 

189:1-18; Tr. 6/8, 29:5-9; Tr. 6/13, 80:10-15; 81:20-23) 

The Confirmation Order approved a transaction called the “VCLF 

APA” that was defined as “the transaction contemplated by the asset 

purchase agreement among the Debtors and Virginia Conservation Legacy 

Fund and its affiliate (collectively, ‘VCLF’), whereby VCLF agreed to acquire 

certain assets and assume certain liabilities excluded from the Blackhawk 

Transaction . . . as amended, supplemented, or modified from time to time . . 

. .” (Ex. 334 at ¶¶ 26, 12, 122) The Commitment Letter, by contrast, defined 

the “VCLF APA” as the August 16 APA “as amended, modified or 

supplemented prior to the date hereof [September 21, 2015].” (Ex. 40 at 

BDCF-00028157) The changes to the transaction put in place after 

September 21, 2015, were included in the VCLF APA approved by the Court; 

thus, the Confirmation Order substantially modified the August 16 APA as it 

existed on September 21, 2015. (Tr. 6/4, 195:16-23; Tr. 6/5, 235:3-7; Tr. 6/7, 

197:2-22; Ex. 334) 

Between September 21 and October 23, 2015, representatives of VCLF 

sought only two kinds of financing, neither of which consisted of closing or 

acquisition financing that would replace Black Diamond’s Commitment—(i) 

post-closing inventory financing from Mercuria Energy Group (“Mercuria”), 

which was the subject of discussions between J. McCoy and Michael Loreman 

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of Mercuria beginning on or about October 13, 2015 (which could be used to 

refinance the Black Diamond debt after the transaction took place), and (ii) 

small personal loans to J. McCoy to defray certain pre-closing diligence and 

administrative costs for the Federal 2 Mine. (Ex. AT; Loreman Dep. Tr. 

117:17-20, 117:22; Tr. 6/11, 319:2-14, 328:13-25; Tr. 6/8, 264:19-265:13) 

After the substantial changes were made to the August 16 APA and 

numerous circumstances having a material adverse effect on VCLA occurred, 

Black Diamond and VCLF attempted, without success, to negotiate mutually 

acceptable amendments to the Commitment Letter. As part of these 

negotiations, Black Diamond proposed changes to VCLF’s modified asset 

purchase agreement with Patriot. (Ex. 289; Tr. 6/4, 203:21-204:10; 204:14-

205:7; Tr. 6/12, 99:6-12) VCLF submitted a revised draft of the modified 

asset purchase agreement incorporating Black Diamond’s requirements to 

Patriot on October 21, 2015. (PX 289; Tr. 6/4, 210:25-211:2; Tr. 6/7, 112:12-

17) On October 22, 2015, Patriot rejected Black Diamond’s proposed changes. 

(Ex. 304; DX BF; Tr. 6/4, 210:23-24; Tr. 6/5, 159:25-160:4; Tr. 6/7, 113:16-22) 

Patriot, VCLF, and Black Diamond never agreed on a modified asset 

purchase agreement. (Tr. 6/4, 231:2-8; Tr. 6/5, 152:16-153:1; Tr. 6/12, 86:1-

16) 

Black Diamond and VCLF engaged in further discussions and 

exchanged emails on October 22 and 23 regarding the terms on which Black 

Diamond would finance the VCLF-Patriot transaction. However, no 

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agreement was reached between Black Diamond and VCLF, either verbally 

or in writing, to amend the Commitment Letter or enter into a new 

agreement. By the evening of October 23, 2015, Black Diamond and VCLF 

had ceased negotiations, and it was apparent that the Patriot-VCLF 

transaction would not be financed by Black Diamond. 

On October 24, 2015, VCLF reached agreements in principle with 

Patriot and the UMWA to enable it to close the VCLF-Patriot transaction. 

(Ex. 175; Ex. 301; Ex. 221; Tr. 6/12, 97:12-17) VCLF was able to complete the 

transaction by obtaining a $1 million coal inventory true-up from Patriot and 

the return of a $10 million UMWA equity investment that VCLF had 

previously relinquished to Patriot during Patriot’s confirmation hearing ($5 

million of which would have to be repaid to Patriot). (Tr. 6/12, 31:17-32:17) 

On October 27, 2015, VCLF and Patriot completed the VCLF-Patriot 

transaction. (Ex. 388, Tr. 6/11, 309:18-19) Black Diamond did not provide 

any funding for the transaction or otherwise participate, and VCLF did not 

convey an interest in the purchased assets to Black Diamond. (Tr. 6/5, 128:1-

7; 181:14-25) 

CONCLUSIONS OF LAW14

Governing Law 

The Commitment Letter, by its terms, “shall be governed by, and 

construed in accordance with, the laws of the State of New York.” Ex. 40 at 

14 To the extent any finding of fact shall be determined to be a conclusion of law, it 

shall be so deemed, and to the extent any conclusion of law shall be determined to be 

a finding of fact, it shall be so deemed. 

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BDCF-00028160; see also Remand Opinion, 2016 WL 5360950, at *4 (the 

Commitment Letter “contains a choice of law provision requiring it to be 

interpreted in accordance with New York law”); McPike v. Zero-Gravity 

Holdings, Inc., 280 F. Supp. 3d 800, 806 n.5 (E.D. Va. 2017) (“Under Virginia 

law, contractual choice-of-law provisions are dispositive on the question of 

what substantive law applies to a given cause of action.”). Accordingly, New 

York law governs both Black Diamond’s claim and VCLF’s counterclaim, 

since both actions are based on alleged breaches of the Commitment Letter. 

Elements of Breach of Contract and Burden of Proof 

The elements of an action for breach of contract in New York are: 

“(1) formation of a contract between plaintiff and defendant; (2) performance 

by plaintiff; (3) defendant’s failure to perform; and (4) resulting damage.” 

Clearmont Prop., LLC v. Eisner, 872 N.Y.S.2d 725, 728 (N.Y. App. Div. 2009) 

(quoting Hecht v. Components Int’l, Inc., 22 Misc. 3d 360, 364, 867 N.Y.S.2d 

889, 895 (N.Y. Sup. Ct. 2008)); see also Nat’l Mkt. Share, Inc. v. Sterling Nat’l 

Bank, 392 F.3d 520, 525 (2d Cir. 2004) ( “[T]o establish a prima facie case for 

breach of contract [under New York law], a plaintiff must plead and prove: 

(1) the existence of a contract; (2) a breach of that contract; and (3) damages 

resulting from the breach.”) (emphasis added); Paxi, LLC v. Shiseido Ams. 

Corp., 636 F. Supp. 2d 275, 281-82 (S.D.N.Y. 2009). Here, if it is to establish 

that VCLF breached the Commitment Letter, Black Diamond must 

demonstrate that it performed and that VCLF failed to perform pursuant to 

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the terms of the Commitment Letter. VCLF must prove the opposite in order 

to succeed in its counterclaim that Black Diamond breached the terms of the 

Commitment Letter — that VCLF performed and that Black Diamond failed 

to perform pursuant to the terms of the Commitment Letter. 

To prevail on a breach of contract claim under New York law, a 

plaintiff “has the burden of proving his case by a fair preponderance of the 

credible evidence.” Rinaldi & Sons, Inc. v. Wells Fargo Alarm Serv., Inc., 347 

N.E.2d 618, 620 (N.Y. 1976); accord Grogan v. Garner, 498 U.S. 279, 286 

(1991) (“[W]e presume that [the preponderance of the evidence] standard is 

applicable in civil actions between private litigants unless particularly 

important individual interests or rights are at stake.” (quotation omitted)). 

Thus, Black Diamond must prove by a preponderance of the evidence that 

VCLF breached the Commitment Letter in order to prevail on its claim, and 

VCLF must prove by a preponderance of the evidence that Black Diamond 

breached the Commitment Letter in order to prevail on its counterclaim. 

Establishing a fact by a preponderance of the evidence means proving 

that the fact is more likely than not to have occurred. In re Beautisha B., 982 

N.Y.S.2d 351, 352 (N.Y. App. Div. 2014); see also United States v. Mandanici, 

205 F.3d 519, 532 (2d Cir. 2000) (“A preponderance means more likely than 

not.”). If the evidence proffered by the plaintiff and defendant at trial is 

evenly balanced, then the plaintiff has not met its burden. 300 E. 34th St. 

Co. v. Habeeb, 683 N.Y.S.2d 175, 178 (N.Y. App. Div. 1997); see also Rinaldi 

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& Sons, 39 N.Y.2d at 196 (“If, at the close of the proofs, the evidence as a 

matter of logical necessity is equally balanced, plaintiff has failed to meet his 

burden and the cause of action is not made out.”). 

Under New York law,15 ambiguities in a contract are construed against 

the drafter. SSP Capital Partners, LLC v. Mandala, LLC, 715 F. Supp. 2d 

443, 447 (S.D.N.Y. 2009), aff’d, 402 F. App’x 572 (2d Cir. 2010); see also Natt 

v. White Sands Condominium, 943 N.Y.S.2d 231, 232-33 (N.Y. App. Div. 

2012). Contract language is ambiguous if it is “reasonably susceptible of 

more than one interpretation”16 and “there is nothing to indicate which 

meaning is intended, or where there is contradictory or necessarily 

inconsistent language in different portions of the instrument.”17 Id. An 

ambiguous contract is “subject to the rule invoking strict construction of the 

contract in the light most favorable to the nondrafting party.” Id. at 233. 

The Commitment Letter was drafted by Harris, Black Diamond’s counsel. 

Therefore, to the extent there are any ambiguities in the language of the 

Commitment Letter (i.e, where different interpretations may be gleaned), the 

language must be construed in the light most favorable to VCLF.18

15 The Court’s treatment of any ambiguities in the Commitment Letter is 

determined by application of New York law, the parties’ chosen law. Ex. 40 at 

BDCF-00028160; Black Diamond, 2016 WL 5360950, at *4; see generally Audio 

MPEG, Inc. v. Dell Inc., 272 F. Supp. 3d 813, 823 (E.D. Va. 2017) (resolving 

contractual ambiguities under New York law when the parties had agreed that the 

contract would be governed by New York law). 

16 Quoting Chimart Assoc. v. Paul, 489 N.E.2d 231, 233(N.Y. 1986). 

17 Quoting Travelers Ins. Co. v. Castro, 341 F.2d 882, 884 (1st Cir. 1965). 

18 Neither party presented evidence of any significant negotiations that took place 

between the delivery of the initial draft by Black Diamond’s counsel and the 

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The Commitment Letter 

The Commitment Letter is the product of VCLF’s desire to obtain the 

financing necessary to enable it to consummate its transaction with Patriot 

and of Black Diamond’s desire to receive interest on its loans and an equity 

stake in the assets being acquired by VCLF. When the Commitment Letter 

was executed, VCLF had been designated the stalking horse purchaser for 

Patriot’s noncore assets. As the stalking horse purchaser under the August 

16 APA, if VCLF were to be outbid by another bidder, it would have been 

entitled to receive a breakup fee. VCLF was willing to share the breakup fee 

with Black Diamond in exchange for its loan commitment. The parties 

contemplated that the alternative to VCLF’s being outbid was that it would 

consummate the transaction, with Black Diamond providing the financing 

and, in exchange for doing so, sharing ownership of the acquired assets with 

VCLF. 

In order to prevent VCLF from “shopping” the loan commitment in an 

effort to secure more favorable financing, the parties agreed to an exclusivity 

provision under which Black Diamond would be entitled to the Equity 

Interests if its failure to provide the loan resulted solely from VCLF’s having 

breached its obligations. The Commitment Letter explicitly stated that Black 

Diamond’s commitment was based on the August 16 APA. Were the terms of 

the transaction to change materially, Black Diamond would no longer be 

execution of the final version, and there were no material changes to the initial draft 

before its execution. 

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obligated to provide the loan. However, if Black Diamond chose not to 

finance the transaction because the transaction had materially changed for 

reasons unrelated to a breach by VCLF, then VCLF would no longer be 

obligated to convey an interest in the purchased assets to Black Diamond. 

This understanding was memorialized in the Commitment Letter. The 

Commitment Letter was executed by both parties and is a valid and 

enforceable contract. 

Consideration for the loan commitment did not include a 

transfer of the Equity Interests 

The Commitment Letter expressly provides that “[t]he payments to 

Black Diamond hereunder [i.e., 50% of the breakup fee] shall be consideration 

for Black Diamond’s execution and delivery of this Commitment.” (Ex. 40 at 

BDCF-00028159) This is the only consideration for Black Diamond’s 

execution and delivery of the Commitment Letter that was expressly 

identified. Nowhere does the Commitment Letter state that Black Diamond’s 

receipt of the Equity Interests constitutes further consideration for Black 

Diamond’s execution and delivery of the Commitment Letter. If that had 

been the intent of the parties, then presumably it would have been 

specifically stated as well. It follows that VCLF’s contention that it did not 

agree to convey the Equity Interests to Black Diamond as consideration for 

Black Diamond’s execution and delivery of the Commitment Letter is the 

correct interpretation of the Commitment Letter. To the extent that the 

Commitment Letter may be interpreted to provide otherwise, it is, at best, 

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ambiguous and must be strictly construed in the light most favorable to 

VCLF, the nondrafting party. 

Black Diamond is not entitled to receive the Equity Interests solely in 

exchange for delivering the Commitment Letter. Moreover, since VCLF did 

not receive the breakup fee, no consideration is due to Black Diamond in 

exchange for delivering the Commitment Letter.19

VCLF Did Not Violate the Non-Solicitation Provisions 

The Commitment Letter prohibited VCLF from soliciting alternative 

financing to replace the closing financing that Black Diamond was to provide, 

but it did not prohibit VCLF from seeking “take-out” financing that would be 

extended by a different lender after closing in order to pay off Black 

Diamond’s loan before maturity, nor was VCLF prohibited from using other 

sources to fund miscellaneous expenses in connection with the transaction. 

The purpose of the Non-Solicitation Provisions was to prevent VCLF from 

replacing Black Diamond as its “partner,”20 the source of financing needed to 

19 The Court rejects Black Diamond’s contention that VCLF needed the Commitment 

Letter to be in place on or before September 21, 2015, for purposes of participating in 

the auction or otherwise. Neither the language of the Commitment Letter nor the 

weight of the evidence supports this contention. Furthermore, even if Black 

Diamond’s contention were to be correct, the provisions of the Commitment Letter 

addressing the agreed upon consideration govern, and under these provisions Black 

Diamond is not entitled to the Equity Interests. 

20 Clarke characterized the relationship with Black Diamond as “the perfect 

partnership.” (Tr. 6/11, 314:23-315:3) K. McCoy stated: “you’re [Black Diamond] 

now our partner. We –we won’t – we won’t shop this. You know, you’re our one and 

only.” (Tr. 6/13, 84:9-19). J. McCoy: “[W]e had a group [Black Diamond] who was 

going to – could give us a twenty-five million dollar commitment. The coal market 

was a tough market, and the fact that they were going to step in with us and be 

partners with us on this project, that meant a lot to me . . . . I trust them. These are 

my partners.” (Tr. 6/8, 186:18-187:6) This testimony, which the Court finds 

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acquire the noncore assets from Patriot, thereby depriving Black Diamond of 

the benefit of the interest it would earn on the loans and the Equity Interests 

it would acquire at closing. 

Non-Solicitation 

The Commitment Letter provides that VCLF agrees that it will not 

solicit or accept “debt or equity financing” other than from Black Diamond. 

The Court interprets this phrase to mean what the parties intended, as 

described by VCLF’s witnesses, — that VCLF would not solicit or accept 

financing for the purpose of replacing the financing contemplated in the 

Commitment Letter. The parties agreed that post-closing inventory 

financing by VCLF and small loans that might be obtained by a member of 

VCLF in order to deal with pre-closing expenses were permitted so long as 

the loans were not intended to replace the financing described in the 

Commitment Letter. 

Under the terms of the Commitment Letter, VCLF had the right to 

“voluntarily prepay the Term Loans (together with accrued but unpaid 

interest thereon) under the Term Loan Facility, in whole or in part at any 

time and from time to time (subject to minimum thresholds as set forth in the 

Loan Facility Documentation) without premium or penalty.” (Ex. 40 at 

BDCF-00028164). The discussions with Mercuria were for the purpose of 

replacing Black Diamond’s loan after the transaction had occurred and were 

particularly credible, illustrates the intention of the parties at the time the 

Commitment Letter was executed. 

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not an attempt to secure financing to replace Black Diamond as the source of 

financing to consummate the transaction with Patriot. Interpreting the 

language to mean that VCLF could not solicit financing of any kind would be 

contrary to the parties’ understanding that VCLF was not prohibited from 

seeking post-closing financing intended to prepay Black Diamond. 

Similarly, J. McCoy’s attempts to obtain small loans to cover personal 

expenses being incurred pre-closing were not prohibited under the 

Commitment Letter. Those loans were not intended to replace Black 

Diamond as the transaction lender or to change the terms of Black Diamond’s 

deal, nor could they have done so. Black Diamond’s contention that the 

exclusivity language was meant to prohibit VCLF from arranging any 

additional financing that might be necessary in order to prepare for closing 

cannot be reconciled with the mutual goal of successfully consummating the 

transaction with Patriot. 

VCLF did not solicit financing for the purpose of replacing Black 

Diamond. The only evidence that VCLF approached other sources of 

financing after execution of the Commitment Letter and before October 23, 

2015, involves Mercuria and the small loans that were sought by J. McCoy. 

None of these potential sources of funding contemplated debt or equity 

financing intended for the purpose of financing the purchase of Patriot’s 

noncore assets without Black Diamond’s loans. 

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It is also significant that neither the Mercuria financing nor the loans 

sought by J. McCoy were obtained. Even if VCLF’s communications were in 

violation of the Commitment Letter’s exclusivity provision, which they were 

not, Black Diamond has failed to establish a causal connection between this 

alleged breach and its alleged damages. 

Exclusivity 

The Confirmation Order was entered on October 9, 2015. The 

Confirmation Order approved a materially modified version of the August 16 

APA. In addition, the parties had become aware of circumstances arising 

after execution of the Commitment Letter that would have a material 

adverse effect on VCLF’s post-closing operations, including the reduction in 

the amount of coal inventory to be delivered at closing, responsibility for a 

longwall move being shifted to VCLF, and the addition of the expense 

associated with relocating Bula Baptist Church. As of October 9, 2015, but 

certainly no later than October 22, 2015, Black Diamond was aware that the 

transaction described in the August 16 APA, as contemplated in the 

Commitment Letter, would not take place. Pursuant to the terms of the 

Commitment Letter, Black Diamond had no obligation to finance the 

modified transaction. 

No later than October 22, 2015, Black Diamond made it known to 

VCLF that the conditions under which it was obligated to provide the agreedupon loan no longer existed and, consequently, it would not provide financing 

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on the terms set forth in the Commitment Letter. Although Black Diamond 

remained willing to attempt to negotiate alternative financing terms in 

conjunction with changes it proposed to the modified asset purchase 

agreement between VCLF and Patriot, the parties were unable to come to 

any agreement, either verbally or in writing. By October 23, 2015, it was 

apparent to both parties that no agreement would be reached. VCLF was 

also aware that it would be unable to consummate its transaction with 

Patriot unless it was able to find sources of funding other than Black 

Diamond. It was not until that time that VCLF began seeking a replacement 

for Black Diamond’s financing that would enable it to complete its 

transaction with Patriot. 

The relationship between the parties, their conduct, and the attendant 

circumstances that existed on October 23 unequivocally establish that 

neither party considered itself to be further bound by the Commitment 

Letter. Out of its desire to obtain the Equity Interests, Black Diamond sought 

the agreement of VCLF and Patriot to new terms under which Black 

Diamond would agree to provide financing. Hoping to receive the financing it 

needed to consummate the transaction with Patriot, including $10 million in 

cash to be funded at closing, VCLF sought to convince Black Diamond to 

agree to loan terms similar to the terms contemplated under the original 

transaction. Neither party was willing to accept the other’s new terms but, 

more importantly, each of the parties’ actions was inconsistent with an intent 

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to be further bound by the stated terms of the Commitment Letter. Under 

these facts, the obligations of the Commitment Letter terminated. See

Rothko v. Reis (In re Estate of Rothko), 372 N.E.2d 291, 299 (N.Y. 1977) (the 

question of whether a contract has been cancelled by mutual agreement is 

generally a question of fact); In re Schanzer v. Herz (In re Schanzer's Estate), 

182 N.Y.S.2d 475, 479 (N.Y. App. Div. 1959), aff’d sub nom. In re Schanzer’s 

Estate, 8 N.Y. 2d 972 (1960); Restatement, (Second) of Contracts § 283, cmt. a 

(“an agreement of rescission may be inferred from conduct”). 

The Commitment Letter having terminated no later than October 23, 

2015, the parties were released from its provisions. It was not until that 

point that VCLF initiated discussions with Patriot and the UMWA, enabling 

it to close with pursuant to agreements it reached with them. Accordingly, 

VCLF did not breach the Non-Solicitation Provisions. 

VCLF Did Not Breach the Commitment Letter

The purpose of Black Diamond’s loan commitment was to “(a) [pay] 

certain fees, costs and expenses in connection with the consummation of the 

transactions contemplated by the VCLF APA, and (b) [provide] VCLF with 

working capital from and after the consummation of such transaction.” (Ex. 

40 at BDCF-00028157) Black Diamond “commit[ted] to provide VCLF with 

asset based loans and/or term loans in the aggregate principal amount of 

$25,000,000. . . .” (Id.) In short, Black Diamond agreed to lend VCLF the 

funds necessary to enable it to complete its transaction with Patriot. 

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Financing the transaction was the consideration VCLF was to receive from 

Black Diamond under the terms of the Commitment Letter. 

In exchange for the financing, VCLF was obligated to pay back the 

loans with interest and convey the Equity Interests on the “closing date” 

(defined as the date of the “initial funding” of the loan). (Ex. 40) Clearly, 

funding the loans was a condition precedent to Black Diamond’s obtaining 

the Equity Interests. 

The Commitment Letter provided that “[t]he Commitment and other 

undertakings hereunder” were subject to various other conditions, few of 

which, if any, were demonstrated at trial to have been satisfied. Due to the 

failure of these conditions,21 Black Diamond had no obligation to finance 

VCLF’s acquisition and VCLF had no obligation to accept financing from 

Black Diamond on whatever modified terms Black Diamond might have been 

willing to lend.22

21 There was no evidence offered to suggest that VCLF orchestrated changes to the 

August 16 APA in order to manipulate the termination of the Commitment Letter. 

Therefore, VCLF is not prevented from relying on the failure of these conditions, 

including the condition that Black Diamond provide financing. See W. Alton Jones 

Found. v. Chevron U.S.A. Inc. (In re Gulf Oil/Cities Service Tender Offer Litig.), 725 

F. Supp. 712, 737 n.9 (S.D.N.Y. 1989) (“The prevention doctrine is an exception to 

the general rule that one has no duty to perform under a contract containing a 

condition precedent until the condition occurs. The doctrine excuses a condition 

precedent when a party wrongfully prevents that condition from occurring.”). 

22 The Commitment Letter did not provide that the conditions were enforceable only 

by Black Diamond, and it is not evident from the nature of most of these conditions 

that they were intended to be enforceable only by Black Diamond. In light of Black 

Diamond’s having drafted the Commitment Letter without specifying either party’s 

enforcement or waiver rights, the Court finds that the conditions are equally 

enforceable by either party. 

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Black Diamond’s entitlement to the benefits due in exchange for 

providing financing to VCLF was subject to the condition that the loan be 

consummated or, as stated in the contract, that Black Diamond provide the 

“initial funding.” Funding, which was to be the event giving rise to VCLF’s 

duty to deliver the consideration due to Black Diamond, did not occur. 

Therefore, VCLF is not obligated to Black Diamond. Comptroller General of 

Bolivia ex rel. Bolivian Airforce v. Int’l Promotions & Ventures, Ltd., 618 F. 

Supp. 202, 207 (S.D.N.Y. 1985) (“Fundamentally, the parties to a contract 

may condition the performance of either party, or the validity of the entire 

contract itself, on the occurrence of an event. If that event does not occur, the 

contractual obligation does not arise.” (citation omitted)). To the extent that 

the Commitment Letter may be interpreted to provide otherwise, the Court 

finds that the language is ambiguous and must be construed against Black 

Diamond, the drafter of the document.23

23 As the Court has stated, the Non-Solicitation Provisions were intended to prevent 

VCLF from leaving a willing Black Diamond at the altar by partnering instead with 

a more favorable source of financing. Once Black Diamond elected not to provide 

financing on the terms set forth in the Commitment Letter, VCLF was no longer 

bound to accept Black Diamond as its lender and, upon termination of the 

Commitment Letter, was no longer subject to the Non-Solicitation Provisions. VCLF 

was no longer seeking financing for the purpose of consummating the transaction 

contemplated by the Commitment Letter but rather for an alternative transaction 

that was unacceptable to Black Diamond. The language in the Commitment Letter 

obligating VCLF to utilize financing solely from Black Diamond cannot be read to 

survive Black Diamond’s election not to go forward with the loan on the terms 

described in the Commitment Letter, for to do so would require VCLF to either 

accept whatever terms Black Diamond were to dictate, no matter how onerous, or 

abandon any effort to complete a transaction with Patriot. Such an interpretation 

would not only be incongruous with other language in the Commitment Letter but is 

contrary to the intent of the parties. 

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By October 23, 2015, it was clear that Black Diamond was not going to 

finance VCLF’s transaction with Patriot pursuant to the Commitment Letter 

or otherwise.24 VCLF’s subsequent efforts to consummate the transaction 

without Black Diamond’s involvement were not in breach of the Commitment 

Letter which, by that time, had terminated. 

The evidence does not support the contention that VCLF sought to 

exclude Black Diamond from the transaction by procuring or negotiating 

changes to the asset purchase agreement or that VCLF otherwise acted in 

 Moreover, there is no language indicating that VCLF’s obligation to convey 

the Equity Interests to Black Diamond would survive the termination of the 

Commitment Letter even if the termination were the result of its conditions having 

not been satisfied, and the Court will not read such language into the contract. Such 

an interpretation would be commercially unreasonable and tantamount to finding 

that Black Diamond was entitled to receive the Equity Interests solely in exchange 

for delivering the Commitment Letter, a contention that the Court has already 

rejected. See Greenwich Cap. Fin. Prods., Inc. v. Negrin, 903 N.Y.S.2d 346, 348 

(N.Y. App. 2010) (declining to construe guaranty contract in accordance with 

defendant’s interpretation because it would “ignore[ ] common sense, and could lead 

to absurd results” and holding that contracts must be read “in a manner that 

accords the words their fair and reasonable meaning, and achieves a practical 

interpretation of the expressions of the parties. Put otherwise, a contract should not 

be interpreted to produce a result that is absurd, commercially unreasonable or 

contrary to the reasonable expectations of the parties.” (citations omitted)); see 

generally In re Cromwell Towers Redevelopment Co. v. Yonkers, 359 N.E.2d 333 

(N.Y. 1976) (“[D]ue consideration must be given to the purpose of the parties in 

making the contract. A fair and reasonable interpretation, consistent with that 

purpose, must guide the courts in enforcing the agreement.” (citation omitted)); 

Heller v. Pope, 164 N.E. 881, 882 (N.Y. 1928) (“The question is as to the fair and 

reasonable meaning that may be given to the writing sued on.”). 

24 VCLF’s demand that Black Diamond close on the terms set forth in the 

Commitment Letter and Black Diamond’s offer to do so provided that VCLF and 

Patriot revert to the August 16 APA as it existed on September 21, 2015, were 

disingenuous, made solely in anticipation of litigation, and are of no consequence. 

VCLF knew that Black Diamond was not obligated to provide financing pursuant to 

the Commitment Letter’s terms in light of the modifications to the asset purchase 

agreement and Black Diamond knew that reversion to the original August 16 APA 

was not possible. By the time these communications took place, after October 23, 

2015, the Commitment Letter had terminated. 

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bad faith. VCLF’s intention was to complete the transaction with Black 

Diamond, until it became clear that Black Diamond was unwilling to finance 

the transaction on terms that VCLF reasonably believed would enable it to 

acquire Patriot’s noncore assets and establish a viable business model. The 

contract expired on its own terms, with neither party having a remaining 

obligation to the other. 

Black Diamond has not met its burden of proving by a preponderance 

of the evidence that VCLF failed to perform its obligations under the 

Commitment Letter or otherwise breached its terms. Therefore, the Court 

will dismiss Black Diamond’s breach of contract claim.25

Black Diamond Did Not Breach the Commitment Letter 

Black Diamond correctly states that it had no obligation to fund a 

proposed modified asset purchase agreement because its obligations under 

the Commitment Letter related only to the transaction embodied in the 

August 16 APA.26 VCLF has essentially conceded this point, stating that 

“[b]ecause no alleged breach by either Party occurred before the conditions in 

the Commitment Letter irreversibly failed, the Court [should dismiss] Black 

25 As a result of Black Diamond’s failure to establish VCLF’s liability, the Court is 

not required to address the amount of damages that Black Diamond may have been 

entitled to recover had it prevailed. Nevertheless, having heard extensive testimony 

concerning damages, the Court wishes to note that the speculative nature of Black 

Diamond’s damage claim, both with respect to the value of the W/C Package and the 

interest it claims it would have earned on the loans it did not make, coupled with its 

failure to address its duty to mitigate, would make it very difficult, if not impossible, 

to arrive at an appropriate amount. 

26 Black Diamond’s Proposed Findings of Fact and Conclusions of Law, Dkt. 409, ¶ 

173. 

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Diamond’s claim against VCLF and . . . VCLF’s counterclaims against Black 

Diamond.”27

Alternatively, VCLF contends that if the conditions did not fail,28

Black Diamond breached the Commitment Letter, arguing that equitable 

estoppel and implied waiver preclude Black Diamond from asserting that it 

was not required to provide the loan described in the Commitment Letter. 

Citing New York law, VCLF contends that a contract’s provision stating that 

its terms may only be modified or waived by an instrument in writing signed 

by the party against whom enforcement is sought can nevertheless be 

abrogated by a party’s course of conduct.29 VCLF asserts that Black 

Diamond effectively waived the written modification requirement when it 

continued to pursue the transaction after it became aware of the changes and 

that, as a result of its failure to advise VCLF that it would not fund the 

modified transaction, it should be precluded from arguing that a written 

instrument was required. VCLF maintains that it relied on Black Diamond’s 

conduct to its detriment in the belief that Black Diamond would finance the 

transaction according to the terms described in the Commitment Letter. 

27 VCLF’s Proposed Findings of Fact and Conclusions of Law, Dkt. 412, ¶ 81. 

28 Having found that the conditions did fail, relieving both parties from their 

obligations under the Commitment Letter, the Court’s ruling is in keeping with the 

Defendants’ preferred outcome; nevertheless, the Court will address VCLF’s 

alternative contentions because they raise an independent theory of recovery. 

29 VCLF cites Aiello v. Burns Int’l Sec. Servs. Corp., 110 A.D.3d 234, 245 (N.Y. App. 

2013); Kenyon & Kenyon v. Logany, LLC, 33 823 N.Y.S.2d 72 (N.Y. App. 2006); 

Simon & Son Upholstery, Inc. v. 601 W. Assocs., L. L. C., 702 N.Y.S.2d 256 (N.Y. App. 

2000). 

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The evidence does not support VCLF’s contention that it was misled by 

Black Diamond’s course of conduct. Both parties offered repetitive, 

exhaustive, and detailed evidence of the failed negotiations that occurred 

after the mutual recognition that the transaction upon which the 

Commitment Letter was based was no longer possible. Both parties were 

keenly aware that Black Diamond’s financing of the transaction would occur 

only if they could agree on revised terms.30 Both parties admit that there 

was no written instrument signed by the party against whom enforcement 

was being sought. VCLF never accepted any of the revised terms being 

proposed by Black Diamond and, therefore, could not have relied upon them. 

Black Diamond did not mislead VCLF nor did it breach the provisions of the 

Commitment Letter. 

VCLF has not met its burden of proving by a preponderance of the 

evidence that Black Diamond breached the Commitment Letter.31 

Accordingly, the Court will dismiss the Counterclaim. 

CONCLUSION 

The parties entered into a contract that, in essence, created a 

partnership that would enable VCLF to acquire certain assets from Patriot 

30 For the same reason, Black Diamond did not repudiate the Commitment Letter. 

Black Diamond was not contractually bound to provide financing for a transaction 

other than that set forth in the August 16 APA, the transaction as it existed at the 

time the Commitment Letter was executed. By October 9, 2015, that transaction no 

longer existed. 

31 Were VCLF to have prevailed on its counterclaim, the Court would have been 

challenged to arrive at a quantifiable amount of damages in light of the scant 

evidence submitted by VCLF. 

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with the financial assistance of Black Diamond. In exchange for providing 

the financing, Black Diamond was to receive an ownership interest in the 

assets being acquired. The parties agreed that if the transaction did not 

occur because Patriot received a better offer, then they would split the 

breakup fee to which VCLF would be entitled as the stalking horse. In 

addition, VCLF agreed that it would not seek a replacement for Black 

Diamond. This understanding was incorporated into the Commitment 

Letter. 

VCLF was not outbid; however, due primarily to the needs of Patriot, 

the transaction upon which the Commitment Letter was based changed to 

the substantial detriment of VCLF. Despite the increased challenges, VCLF, 

seeking to fulfill its altruistic mission, chose to move forward with the 

acquisition. However, Black Diamond, also acting true to its purpose, was 

unwilling to offer the same financing terms in connection with the less 

attractive investment opportunity and, under the provisions of the 

Commitment Letter, was not obligated to do so. The parties attempted to 

negotiate mutually acceptable modifications to the Commitment Letter but 

were unable to do so. As a result, the Commitment Letter terminated, with 

neither party remaining obligated to the other. VCLF completed the 

transaction without Black Diamond but was only able to do so with the 

assistance of Patriot and the UMWA. Black Diamond was not involved and 

contributed nothing in connection with VCLF’s purchase. 

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Black Diamond contends that the parties agreed that in exchange for 

Black Diamond’s delivering the commitment for a loan that it ultimately 

chose not to make, Black Diamond is entitled to an ownership interest in the 

assets acquired by VCLF; i.e., that its entitled to the benefits of the 

partnership that it rejected. There is no evidence that VCLF agreed to this. 

More importantly, the Commitment Letter, which was drafted by Black 

Diamond’s attorney, does not make this clear; on the contrary, it specifies 

consideration for delivering the commitment that does not include an interest 

in the assets being acquired. In short, under the facts of this case and the 

language of the contract, Black Diamond is not entitled to an ownership 

interest in the acquired assets or anything else. 

In sum, Black Diamond had the burden of proving that VCLF breached 

the Commitment Letter. It has failed to meet that burden. 

Neither has VCLF met its burden of proving that Black Diamond 

breached the Commitment Letter. As a result of the changes to the VCLFPatriot transaction, Black Diamond was no longer obligated to provide the 

financing described in the Commitment Letter. Under the terms of the 

Commitment Letter, Black Diamond was allowed to walk away from the 

transaction, and that is what it chose to do. 

The Court will enter a separate order dismissing Black Diamond’s 

Complaint and dismissing VCLF’s counterclaim. 

Date: September 28, 2018 /s/ Keith L. Phillips 

United States Bankruptcy Judge 

Entered on Docket: September 28, 2018

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Copies: 

Dianne F. Coffino 

Covington & Burling LLP 

620 Eighth Avenue 

New York, NY 10018-1405 

David W. Haller 

Covington & Burling LLP 

620 8th Avenue 

New York, NY 10018 

Dion W. Hayes 

McGuireWoods LLP 

800 East Canal Street 

Richmond, VA 23219 

John H. Maddock III 

McGuireWoods LLP 

Gateway Plaza 

800 East Canal Street 

Richmond, VA 23219 

Micaela R.H. McMurrough 

Covington & Burling LLP 

620 8th Avenue 

New York, NY 10018 

C. William Phillips 

Covington & Burling LLP 

620 8th Avenue 

New York, NY 10018 

David Zorian Pinsky 

Covington & Burling LLP 

620 8th Avenue 

New York, NY 10018 

Patrick J. Potter 

Pillsbury Winthrop Shaw Pittman LLP 

1200 Seventeenth Street NW 

Washington, DC 20036 

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Joshua I. Schlenger 

Pillsbury Winthrop Shaw Pittman LLP 

1540 Broadway 

New York, NY 10036 

Jonathan M. Sperling 

Covington & Burling LLP 

620 8th Avenue 

New York, NY 10018 

William M. Sullivan, Jr. 

Pillsbury Winthrop Shaw Pittman LLP 

2300 N. Street, NW 

Washington, DC 20037 

William Michael Sullivan 

Pillsbury Winthrop Shaw Pittman LLP 

1200 Seventeenth Street, NW 

Washington, DC 20036 

Andrew M. Troop 

Pillsbury Winthrop Shaw Pittman LLP 

1540 Broadway 

New York, NY 10036 

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